What’s the current outlook for Santos, Woodside and oil prices?

'Without OPEC+, the global oil market has lost its regulator and now only market mechanisms can dictate the balance between supply and demand.'

A historic decline

Oil prices plunged to a 17-year low today, as concerns over the Coronavirus pandemic continue to ripple through global commodity markets.

By 18:30 (EDT), WTI Crude had dropped 5.76% to US$20.27 per barrel; while Brent Crude slumped 5.58% to $23.54 per barrel, according to Bloomberg Data.

Ultimately, with no end in sight to Saudi Arabia and Russia’s oil price war – weak and volatile oil prices look set to persist for some time.

As part of this price war, Saudi Arabia plans to increase its production to 12.3 million barrels per day in April, while Russia said its oil industry can ‘remain competitive at any forecast price level.’

Importantly, as Espen Erlingsen from Rystad Energy puts it, 'Without OPEC+, the global oil market has lost its regulator and now only market mechanisms can dictate the balance between supply and demand.'

Oil price forecast 2020

Illustrating the potential extremes of this price war, ING Research recently revised its 2020 oil price forecasts. The research house is now expecting that Brent Crude prices will hit US$20 per barrel in Q2 of CY20, US$35 in Q3 and US$45 in Q4.

WTI Crude prices, by comparison, are now expected to trade at US$17 per barrel in Q2 of CY20, US$30 in Q3 and US$40 in Q4.

Mind you, in the current environment, even if Russian and Saudi Arabia can come to a production cut agreement, ING notes that it would ‘still likely not be enough to bring the market back to balance.’

Santos & Woodside Petroleum share prices: the outlook

In response to these elevated levels of oil price volatility, some of Australia’s large cap gas and oil companies have begun to provide the market with further insight into their hedging operations.

Santos, for example, has not only locked in a number of 'fixed-price' sales contracts – expected to account for some 35% of its sales volumes in 2020 – but the energy giant 'has 6.2 million barrels of oil production hedged in 2020 at a floor price of US$54 per barrel.'

Like Santos, Woodside Petroleum recently explicated a number of measures that it has taken to shore up its revenue in the near-term.

Specifically, the company noted that it ‘has hedged 11.85 million barrels of oil between April and December 2020 at an average price of $33.47 per barrel.’

The company also noted that it has secured a fixed-price contract for ~2.4 MMboe of LNG production between April and December 2020.

Woodside did however flag that:

‘The full impact of lower oil prices will not be realised until late Q2 2020 due to the lag between the oil price and realised LNG price.’

Mind you, even though Woodside and Santos are taking prudent measures to lock-in revenue certainty, their share prices have been sold off heavily in the last month, as investors across the board trim their exposure to risk assets.

Santos traded 4.4% lower, to $3.29 per share in the opening hour of trade today, while Woodside Petroleum rose 1.37% to $17.07 per share.

How to trade ASX oil stocks

What are your thoughts: will oil prices keep plummeting or could a rebound soon be on the cards? You can trade large cap gas and oil stocks like Santos and Woodside Petroleum – long or short through IG’s world-class trading platform now.

For example, to buy (long) or sell (short) Santos using CFDs, follow these easy steps:

  • Create an IG Trading Account or log in to your existing account
  • Enter ‘Santos’ or ‘STO' in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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