Does the negative oil price mean ASX oil stocks are worthless?

This may be the only time in our lives we get to see the WTI turn negative. But will negative crude prices turn our energy stocks to zero?

| More on:
a woman

Investors woke to the shocking news that a key oil benchmark turned negative in overnight trade for the first time in history. But what does this mean for ASX investors and are our energy stocks therefore worthless?

The futures contract for the West Texas Intermediate (WTI) crude to be delivered in May plunged to minus US$37.63 a barrel. This means oil producers are paying their customers to take the commodity.

You have to stand back and appreciate the moment. This could be the only moment in our lifetime to witness such a phenomenon.

Impact on ASX shares

But readers shouldn’t be too surprised at the outcome. I had been writing about the possibility of this outcome since March. I even warned that the energy sector bear market could be stuck in a bear market for longer that most.

The bigger question now for investors is what do negative oil prices mean for our leading energy stocks on the S&P/ASX 200 Index (Index:^AXJO)? This includes Woodside Petroleum Limited (ASX: WPL), Oil Search Limited (ASX: OSH) and Santos Ltd (ASX: OSH).

It’s worth noting that Oil Search is regarded as the most leveraged to the oil price.

Brent vs. WTI

But don’t panic. While our oil-exposed shares are expected to tumble this morning, they aren’t going to zero or turn negative (shares can’t turn negative in case you are worried).

There are a few reasons for this. Firstly, these sector heavyweights aren’t oil but gas producers. Gas prices aren’t negative even though they tend to follow the oil benchmark with a three-month lag.

Secondly, the benchmark they follow is the European standard Brent price and not the US-centric WTI. The Brent price may have tumbled around 9% to US$25.57 a barrel but it’s still in positive territory and isn’t expected to invert.

More global customers use the Brent price than WTI. That is an important distinction and is the key reason why Brent is highly unlikely to turn negative. If you are wondering, the Tapis crude price used in Asia is also trading over US$20 a barrel.

Foolish takeaway

By this same token, motorists shouldn’t expect petrol stations to pay you to fill up your tank! It’s a very seductive thought, but sadly devoid of reality. One needs to remember that there is a cost in processing crude too.

In that respect, airlines like Qantas Airways Limited (ASX: QAN) aren’t going to get free aviation fuel either, although the depressed crude price will trim fuel bills substantially.

So, while the negative oil price will be a good conversational starter at your next virtual BBQ, it isn’t about to change our lives by much.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Connect with him on Twitter @brenlau.

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.

More on Resources Shares

a woman wearing a gold top and carrying a gold bar gives the thumbs down signal as she leans against a wall with a sombre look on her face.
Gold

Here’s why the Ramelius (ASX:RMS) share price tumbled 8% to 4-month lows today

Key points The Ramelius share price sank 8% today Investors did not warm to the company’s quarterly results Gold production …

Read more »

A graphic image of three upward pointing arrows with smoke coming from their bottoms, indicating the arrows are taking off just like the Althea share price today
Resources Shares

Did this just cause the American Rare Earths (ASX:ARR) share price to surge 30% higher?

Key points American Rare Earths’ shares are rocketing higher today A letter to shareholders may have given its shares a …

Read more »

ASX miners crash opportunity broker buy asx shares represented by investor throwing hands up towards icons of buy and sell broker upgrade buy
Broker Notes

Time to sell? Macquarie just downgraded these 3 ASX shares from buys

Key points Macquarie comes out with a list of downgrades today The 3 ASX shares are all concentrated in resources …

Read more »

mining worker making excited fists and looking excited
Resources Shares

Is the BHP (ASX:BHP) share price a buy in all of this volatility?

Key points The BHP share price has been outperforming the ASX 200 in 2022 Iron ore continues to rally higher, …

Read more »

A man in a blue collared shirt sits at his desk doing a single fist pump as he watches his Neometals shares rising on his laptop
Resources Shares

Why is the BHP (ASX:BHP) share price leaping ahead today?

The S&P/ASX 200 Index (ASX: XJO) has unfortunately slipped into negative territory so far this Thursday, after an initially strong market …

Read more »

Man open mouthed looking shocked while holding betting slip
Broker Notes

Broker tips Fortescue (ASX:FMG) share price to sink 30% and warns of dividend cuts

The Fortescue Metals Group Limited (ASX: FMG) share price is pushing higher today after a rise in the iron ore …

Read more »

Business man marking Sell on board and underlining it
Broker Notes

Mineral Resources (ASX:MIN) share price falls 5% following brokerage downgrade

Key points The Mineral Resources share price is coming under more pressure after JPMorgan downgraded it to underweight or sell …

Read more »

Female worker sitting desk with head in hand and looking fed up
Resources Shares

Own Rio Tinto (ASX:RIO) shares? What options does the company have in response to the Serbian government’s decision

Key Points Rio Tinto shares withstand market pressure Management looking at legal options to overturn the Serbian Government’s decision Rio …

Read more »