The oil market has officially crashed into "bear market" territory in overnight trade but investors in ASX-listed energy stocks are taking the bad news in their stride.
The West Texas Intermediate (WTI) benchmark pricing for crude lost over 5% overnight and is down by 22% from its April peak and any peak-to-trough decline of 20% or more is regarded as a "bear market".
The Brent crude price (a benchmark used more by Australian oil and gas producers) also suffered a big loss as it tumbled below US$60 a barrel last night before staging a small comeback this afternoon to trade at US$60.77 a barrel.
Why the oil price is falling
Oil markets came under pressure on news that oil inventories in the US ballooned by around 22 million barrels last week, which is the biggest jump in data going back to 1990, while US crude production set a record, according to Bloomberg.
Traders are turning bearish on the commodity as rising production comes at a time when global demand is seen to be weakening – no thanks to the escalating trade war that US President Trump is declaring on several of his country's trading partners.
Some are nervously eyeing the WTI price as it hovers around US$51 a barrel. The belief is that a drop below the US$50 mark would trigger a wave of automatic sell orders from "algo" platforms that are controlled by computers.
Not all bad news for oil stocks
But ASX oil and gas stocks are defying the gloomy outlook. Both the Woodside Petroleum Limited (ASX: WPL) share price and Beach Energy Ltd (ASX: BPT) recovered from morning losses to trade just above breakeven during lunch time trade, while the Santos Ltd (ASX: STO) share price is shooting the lights out with a 2.3% jump to $6.80 after announcing positive exploration results from its Dorado-2 appraisal well off the coast of Western Australia.
The Oil Search Limited (ASX: OSH) share price is the only one in the lot that can't hold its head above water as it shed 0.3% to $6.86, although I suspect that's more to do with the political scandal in PNG than the oil price.
Investors are panicking (at least not yet) because of talk that the Organization of the Petroleum Exporting Countries (OPEC) plus Russia will extend production cuts beyond the June deadline.
OPEC Secretary-General, Mohammad Barkindo, said as much during an investment conference yesterday that the oil cartel would consider the ongoing "economic bearishness" when it meets in the next few weeks.
Shareholders in ASX-listed oil and gas shares can expect more volatility ahead.
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