Why is the Santos share price off to a cracking start to the week?

Oil and gas prices are energised by a crisis gripping the country.

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Key points

  • The Santos share price is outperforming the benchmark, up 1.8% to $8.55
  • Continued strengthening in the price of oil and are promoting a green streak for energy suppliers
  • Santos is planning to increase gas supply by 15 terajoules per day by the end of the year

The Santos Ltd (ASX: STO) share price is humming along nicely on the first day of trading this week.

Australia’s second-largest ASX-listed energy company by market capitalisation is swapping hands for $8.55, up 1.8%. Meanwhile, the broader S&P/ASX 200 Index (ASX: XJO) is down 0.36% as tech shares drag it lower.

Investors are still warming up for the day as we pass an hour after the ringing of the opening bell. Notably, the energy sector contains some of the best performers on the market so far today.

What’s firing up the Santos share price?

Persistent upwards pressure on energy commodities such as oil and gas is bad news for consumers. However, energy giants — such as Santos — are basking in the prospects of beefier profits.

Overnight, the price of crude oil strengthened by 1.7% to reach US$118.87 per barrel. Simultaneously, natural gas prices are holding at a near 14-year high of US$8.83 per metric million British thermal unit (MMBtu).

Though, the company must walk a fine line between taking advantage of high prices and doing what it can to avoid price caps. Australian energy retailers have already suffered the fate of increased regulatory intervention as prices soar beyond the bounds of affordability.

Fortunately for the Santos share price, the company announced yesterday that it would work on increasing the domestic gas supply. In a joint effort alongside Beach Energy Ltd (ASX: BPT), Santos will fork out $300 million to hopefully bring an additional 15 terajoules per day of gas to the market by the end of the year.

Santos CEO Kevin Gallagher commented on the move:

This investment will deliver more gas to the domestic market, which is desperately needed. Recent domestic gas supply and price pressures have been caused by a spike in gas-fired power generation to back up renewables and to replace the 30% or more of coal-fired power generation that has been offline or not operating since early May.

The Santos share price has substantially outperformed the ASX index since the beginning of the year. Shares in the oil and gas giant are 29.6% better off than at the end of last year.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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