Why are the Woodside, Santos and Oil Search share prices collapsing?

‘Playing Russian roulette in oil markets may well have grave consequences.’

Why oil prices are collapsing

The last month has not been kind to some of Australia’s most prominent oil stocks, as oil prices collapse and panic spreads through equity markets across the globe.

‘Before the Covid-19 crisis the market was expected to move towards balance in the second half of 2020 due to a combination of the production cuts implemented at the start of the year, stronger demand and a tailing off of non-OPEC supply growth,’ the International Energy Agency (IEA) said as a demand shock had just began to ripple through global oil markets.

Ultimately though, what the IEA couldn’t have predicted was that demand shock being joined by a supply shock too.

Yet as we wrote yesterday:

‘As an attempt to keep prices stable, OPEC – the Organization of the Petroleum Exporting Countries – last week pushed group members and non-members to cut production.’

Russia said no to any such cuts, oil prices fell ~10%; so on Monday Saudi Arabia said they’d flood the market with cheap oil, committing to supply 12.3 million barrels of oil to the market in April and the oil price fell again, this time by as much as 34%, to a low of US$27.34 per barrel.

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Mind you, though oil prices have ‘stabilised’ somewhat in the last few days, with Brent Crude currently trading at US$33.97 per barrel and WTI at US$31.17 per barrel, oil stocks across the globe have seen their share prices effectively ‘reset’ in the last month.

In the last thirty days, Santos (ASX: STO) has seen its share price fall 43%, Woodside Petroleum (ASX: WPL) has crumbled 38% and Oil Search (ASX: OSH) has crashed a spectacular 48%.

Espen Erlingsen, from Rystad Energy ominously said of this unfolding situation:

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

And although Russia remains confident that it can withstand the potential economic fallout from an oil price war, the IEA’s Fatih Birol cautioned: ‘playing Russian roulette in oil markets may well have grave consequences.’

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