Are ASX energy shares back in the buy zone? Judging by the market movements this week, it would certainly seem to be the case.
The Santos Ltd (ASX: STO) share price jumped 2.2% higher on Wednesday and could be a hot prospect.
So, is now the time to get into the market, or should you hold off buying ASX energy shares?
Why did the Santos share price surge higher?
Energy was the only ASX sector to gain ground on Wednesday thanks to climbing oil prices.
Both West Texas Instruments (WTI) and Brent crude prices jumped more than 3% on Tuesday. That’s good news for oil producers like Santos and their potential earnings.
The Santos share price is now up 98.6% since 19 March. You might think that those sorts of gains mean you’ve missed the boat on Santos.
However, shares in the Aussie oil producer are still down 33.6% from where they started the year. To me, that says there is still potential upside from ASX energy shares in 2020.
Should you buy ASX oil shares again?
More often than not, a company’s share price drops for a reason. That was certainly the case with the Santos share price earlier this year.
Oil prices were under pressure thanks to an oil price war between OPEC+ and Russia. Oil price contracts even briefly went negative thanks to supply and demand imbalances.
The coronavirus pandemic has certainly been a big factor in 2020. More business shutdowns and less travel have reduced demand for oil.
That’s put the Santos share price under immense pressure in 2020 but investors have been willing to buy the dip.
The big question for me is whether or not coronavirus restrictions continue to ease. We’ve already seen a strong bounce back in economic activity in China.
If we see Australia pull off a similar recovery, oil prices could be heading higher in 2020.
I also think the recent oil shutdowns could bode well for medium to long-term oil price rises. That’s largely thanks to the current supply impacts being felt further down the line.
The Santos share price has already rebounded strongly from the March bear market. However, the ASX energy share is still down 33.6% this year and could have more upside, particularly if we see a strong earnings result in August.
These 3 stocks could be the next big movers in 2020
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Motley Fool contributor Ken Hall 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.
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