The Santos Ltd (ASX: STO) share price had a tough June, but some analysts are tipping better times ahead.
Santos shares plunged 9.51% in the month of June. In today's trade, the company's share price is falling again, by 1.57% to $6.91. For comparison, the S&P/ASX 200 Energy Index (ASX: XEJ) is currently dropping by 0.38% today.
Let's take a look at the outlook for this oil and gas share in July.
Can the Santos share price go higher?
Santos shares dropped in June amid falling oil and gas prices. The crude oil price fell 5.5% from US $111.91 a barrel to US$105.76 a barrel in June, Trading Economics data shows. Natural gas prices also dropped dramatically by 33% from US$8.1380 per million British thermal units (MMBtu) to US$5.4240 MMBtu.
However, looking ahead to July, Luke Smith from Ausbil Investment Management is positive on the Santos share price and said the company is a buy. He added:
We're bullish on both oil and gas. Santos, for us, is the preferred way to play that in the Australian space. [It] has lagged the commodity for some time.
Also sharing his view was Tom Richardson from Paradice Investment Management. He predicts the Santos share price will reflect cash coming back to shareholders in the future. He said:
I think that's inevitable with Santos. As much as development optionality they've got, there's going to be a lot of cash coming back to shareholders and the share price will reflect it.
Oil and gas outlook
Santos is a major oil and gas producer. Looking at gas, UBS analysts have recently predicted east coast gas prices will jump 10% a year up to 2025.
The closure of coal-fired power stations could lead to more reliance on gas-fired power, according to UBS. It said: "While it may take some time for electricity prices to normalise, we expect the role of gas-fired power generation to lift as coal continues to exit the market."
Oil prices fell more than 10% in US markets on Tuesday. Overnight, oil prices dropped a further 2% on global recession fears, Reuters reported.
Yesterday, the team at Citi put out a note warning this decline could continue in a recession scenario. Citi said:
In a recession scenario with rising unemployment, household and corporate bankruptcies, commodities would chase a falling cost curve as costs deflate and margins turn negative to drive supply curtailments.
Share price snapshot
Santos shares have lost nearly 4% over the past 12 months, but they have risen more than 9% this year to date.
For perspective, the S&P/ASX 200 Energy Index has rocketed nearly 21% year to date and close to 15% in a year.
Santos has a market capitalisation of about $23.3 billion based on the current share price.
