ASX oil-exposed stocks are the worst performing group on the market this morning, but this could change in 2021.
The energy sector tumbled 1.3% when the S&P/ASX 200 Index (Index:^AXJO) slipped 0.4% at the time of writing.
The Brent crude oil price tumbled 1.7% overnight to US$47.80 a barrel, while the WTI benchmark fell by a similar amount.
ASX energy stocks retreat as oil prices slide
A retreat in the commodity is triggering this bout of profit-taking on ASX energy stocks. The Oil Search Ltd (ASX: OSH) share price crashed 3.6% to $3.66 and the Beach Energy Ltd (ASX: BPT) share price lost 2.7% to $1.79.
This makes them the third and fourth worst performers, respectively, on the ASX 200 this morning.
But the Woodside Petroleum Limited (ASX: WPL) share price and Santos Ltd (ASX: STO) share prices aren't too far behind. They've each lost more than 1% of their value.
Is the pullback in the oil price a buying opportunity?
These stocks have enjoyed a big bounce recently as speculation of the impending arrival of COVID‐19 vaccines fuelled optimism of an economic recovery.
But the pullback in ASX energy stocks could present a buying opportunity as Credit Suisse believes oil is heading higher.
The broker created a proprietary model that explains 86% of the Brent price variation since 1993 by looking at demand and supply drivers. This model is based on a range of factors like industrial production, ISM new orders index, world oil production and capacity utilisation, just to name a few.
Why oil can hit US$196 a barrel
Even under a more pessimistic scenario, the model is pointing to much higher oil prices. And under the best-case outcome, the Brent price could rocket to a new record high.
"If the Organization of the Petroleum Exporting Countries (OPEC) maintains agreed production cuts, the model points to an oil price of US$196 per barrel!" said Credit Suisse.
"If OPEC production returns to pre‐pandemic levels, fair value falls to US$80 per barrel.
"Even accounting for additional risks, such as inventory build, lack of storage space and political uncertainty, we can see oil prices returning to pre‐pandemic levels of US$60‐65 per barrel if world IP [industrial production] does not collapse or even recovers."
Economic growth looking like a good bet for 2021
There's little risk that industrial production will crash. If anything, experts are confident that economic activity will rebound in 2021 as it looks increasingly likely that a successful vaccine will be found.
The question is how quickly it can be made available to the general public. But as long as there's a viable treatment for COVID, there will be enough business and consumer confidence to reflate the global economy, even if the vaccine takes a little longer to become available.
