The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index will trade without a directional lead from Wall Street on Tuesday as US markets are shut for a holiday. But there’s one sector that’s likely to find support today.
This is the energy sector, which will be emboldened by the jump in the overnight oil price due to supply fears from Libya and Iran, although the commodity returned some of the day’s gains at the close.
But the Brent crude benchmark is still hovering above US$65 a barrel, or 0.4% higher, even as a ceasefire was declared in Libya.
Libya’s double-edge sabre
Fighting between the government and rebel forces led by Khalifa Haftar cut off a key pipeline and shut down two oil fields in that country, which pumps around 1.2 million barrels of oil a day.
This sent the Brent price surging to US$66 a barrel before news out of Berlin of a truce triggered profit taking.
Iraq unrest adding support
Meanwhile, civil unrest in Iraq is also adding support to the oil price. According to Bloomberg, security guards at the Al Ahdab oil field forced the shutdown of the facility after they blocked access to the site to protest for better job security.
While some investors may view the fact that the oil market was unable to hold the highs for the trading day as a negative, the outlook remains highly volatile.
Volatility is the only guarantee
Tensions in the major oil producing region makes forecasting the oil price a mug’s game. Aside from Libya and Iraq, Iran is likely to be plotting their revenge on the US and its allies for the killing of General Qassem Soleimani.
The attack on Saudi Arabia’s Aramco oil processing facilities at Abqaiq and Khurais in September last year isn’t far from investors’ mind.
On the other hand, the market looks like it’s getting better at ignoring what’s deemed to be short-term supply disruptions. Just like the overnight whipsawing of the oil price, the spike in crude on the Aramco facilities was also short-lived.
Oil bears will be unperturbed by the firmer oil price too. They will point to the oversupplied market now that the US has become a major oil and gas exporter thanks to shale.
Further, the relatively high oil price is supported by an artificial factor – the quotas set by OPEC and Russia.
The bloc may have shown better than expected discipline in restricting output, but there will be questions of how long this will last, especially now that the Aramco public float has been completed.
When Edward Vesely -- our resident dividend expert -- has a stock tip, it can pay to listen. With huge winners like Dicker Data (up 126%) and Collins Food (up 79%) under his belt, Edward is building an enviable following amongst investors that are planning for retirement.
In a brand new report, Edward has just revealed what he believes are the 3 best dividend stocks for income-hungry investors to buy now. All 3 stocks are paying growing fully franked dividends giving you the opportunity to combine capital appreciation with attractive dividend yields.
Best of all, Edward’s “Top 3 Dividend Shares To Buy For 2020” report is totally free to all Motley Fool readers.
Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.