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Why is the Woodside (WDS) share price rebounding?

Posted: 2 June 2022 4:21 pm

Shares in the top oil and gas firm have jumped 43% over the last 6 months.

Shares in the newly integrated Woodside Energy (ASX: WDS) are the most traded shares on the ASX on Thursday, as shares in the expanded company jumped 6% in early trading to $32.02 in early trading, building on recent gains that delivered an additional 43% value in the last 6 months.

The momentum has not carried over to the entire energy sector though, with rival Santos (ASX: STO) slipping 0.5%.

Why is the Woodside stock price on a high?

The fresh lift in Woodside Energy shares comes amid a rebound in global oil prices, amid rising demand and ongoing concerns over supply.

Overnight, benchmark Brent crude edged 0.6% higher to US$116.29 a barrel while West Texas Intermediate crude was up 0.5% to US$115.26 a barrel.

Oil prices have marched higher for weeks now as the European Union and the US tighten the squeeze on shipments from Russia, the world's largest exporter of crude and fuel.

EU leaders on Monday agreed in principle to slash 90% of oil imports from Russia by the end of this year, the bloc's toughest sanctions yet since the start of Russia's invasion of Ukraine.

Meanwhile, ministers from the OPEC cartel of oil-producing nations will set output targets for July on Thursday night (Friday AEST). The group has been widely criticised for not boosting output more quickly to deal with rising fuel prices, but producing nations have claimed that most members do not have the extra capacity to lift production.

All this comes at a time of potentially rising demand in an already tight market as China ended its 2-month long COVID-19 lockdown in Shanghai this week. The return to activity of public transport, cars and factories in China's second biggest city is expected to bolster demand for oil globally.

Growth prospects

Woodside is set to benefit from the ongoing spike in oil prices, as the Australian producer realises better prices and also cashes in on the global shortfall in LNG supply.

Analysts estimate annual earnings at Woodside, and also rival Santos, could more than double if oil prices stay above US$100 a barrel, as they have for more than 2 months now.

Meanwhile, Woodside will also see a boost after completing its US$42 billion merger with BHP's petroleum unit, which will transform it into a top 10 global energy producer with over 2 billion barrels of reserves and annual earnings of nearly US$5 billion.

Woodside recently secured major approvals for its $16.5 billion Scarborough LNG project off Western Australia, allowing it to build and operate a pipeline linking offshore gas fields to facilities at its Pluto processing plant, and to tap the project's major fields in future.

Analysts at broker Morgans are optimistic about the stock, this week retaining an "Add" rating on the merged company along with a price target of $32.90 a share, implying some more upside from current levels. The broker is forecasting an FY22 dividend of $2.56 per share on the stock.

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