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Key points
- Crude oil has rocketed over the past month, and is now at its highest level since 2014
- Energy shares have been rising
- Woodside is still a long way off its old highs. So, what's going on?
The Woodside Petroleum Limited (ASX: WPL) share price is enjoying a solid day so far this Wednesday. At the time of writing, Woodside shares are up a healthy 3.05% at $25.82 a share. That's a handy beat of the S&P/ASX 200 Index (ASX: XJO), which has risen a still-robust 1.25% so far today.
As we covered earlier this week, ASX 200 energy shares have been some of the best performers on the entire share market over 2022 thus far. That's in stark contrast to many energy shares' lacklustre performances last year. In Woodside's case, this oil driller is up a pleasing 17% or so year to date. That's very favourable compared to the ASX 200's loss of 4.76% (including today's gains).
Crude oil hits 8-year high
Most of the credit for this outperformance can likely be laid at the feet of crude oil prices. Oil has been on fire recently. According to Bloomberg, the price of Brent crude has risen from under US$70 a barrel two months ago to almost US$90 a barrel today. That's the highest price oil has commanded for years. The last time we saw US$90 for a barrel of oil was back in 2014.
Yet we haven't seen the same enthusiasm spill over into the Woodside share price. Sure, Woodside shares are today reaching their highest levels since February 2020, just prior to the COVID-induced market crash of that year. But we are a long way from the highs this company has seen in the past. Back in early 2020, Woodside shares were going for close to $35, a good 26% from where they are today.
But back then, oil was a lot lower than it is today. And back in 2014, when crude was at levels similar to what we see today (albeit if not higher), Woodside shares were hitting highs over $42 a share. And let's not even mention 2008, when Woodside hit its current reigning all-time high of over $66 a share.
So what's going on here?
Well, it could be down to a few factors.
Why haven't Woodside shares kept up with crude?
The first is that Woodside is just a different company today compared to what it was a few years ago. Last year, Woodside announced that it would acquire the petroleum/energy assets of BHP Group Ltd (ASX: BHP) in an all-stock merger.
It's also been dabbling in the emerging hydrogen industry.
Secondly, investing in energy companies like Woodside is a lot different than it used to be. With many investors now placing ethical and environmental, social and corporate governance (ESG) concerns at the top of their agenda, investing in fossil fuel companies like Woodside has arguably lost its glamour.
There is now a wide range of popular ethical investment products on the ASX, and the trend is still experiencing strong growth. Most funds that invest with an ethical or ESG mandate will not even consider buying Woodside shares, regardless of pricing. This could lead to compression of Woodside's price-to-earnings (P/E) multiples, which in turn could be holding the Woodside share price down, even though its fundamentals might be improving.
This could be another reason why Woodside shares have yet to reclaim their former glory, despite higher energy prices.
We can't say for sure why Woodside shares have not followed oil prices to an eight-year high. But even so, investors have just enjoyed one of the best months they've had in years.
At the current Woodside share price, this ASX 200 energy share has a market capitalisation of $25 billion, with a trailing dividend yield of 2.25%.
