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Why is the Woodside (WDS) share price running higher?

Posted: 6 June 2022 12:55 pm

Shares in the oil and gas producer have jumped nearly 50% over the last 6 months continuing their strong gains today.

Shares in oil and gas companies are keeping the flag flying in a sea of red on the ASX on Monday.

Shares in Woodside Energy (ASX: WDS) were the top traded shares, jumping more than 2% to $32.44 in early trading, while smaller rival Santos (ASX: STO) also climbed nearly 2% to $8.56 each.

Why are the Woodside and Santos stock prices lifting?

Energy shares are back in action on Monday after global oil prices climbed nearly US$2 a barrel in early trading, following 2 significant events: a meeting of ministers from the OPEC cartel of oil-producing nations and a price hike by Saudi Arabia.

Unfortunately for motorists, benchmark Brent crude was up US$1.80, or 1.5%, to US$121.52 a barrel, extending a 1.8% gain from Friday. West Texas Intermediate crude was up US$1.63, or 1.4%, at US$120.50 a barrel, on top of a 1.7% gain on Friday.

This means prices are now at their highest level since early March.

The immediate trigger was Saudi Arabia raising the premium (versus Oman and Dubai benchmarks) on its official selling price by a similar amount on Sunday, an indicator of how tight supply is at the moment.

The move came after OPEC ministers on Friday agreed to increase output in July and August by 648,000 barrels per day. However, most analysts are convinced the member countries do not have actual capacity to increase supply which will result in tight supplies continuing for the near future.

The group has been widely criticised for weeks for not boosting output more quickly to deal with rising fuel prices, amid potentially rising demand in China as it reopens from COVID lockdowns and tightening sanctions by the European Union and the US on shipments from Russia, the world's largest exporter of crude and fuel.

Australian beneficiaries

While higher energy prices are set to deliver a bill shock for Australian households and businesses, they will prove far more beneficial to the 2 major Australian producers, Woodside and Santos, who are realising better prices for KN exports and cashing in on the global shortfall.

Analysts estimate annual earnings at Woodside, and also 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 is also likely to see a boost in earnings from its US$42 billion takeover of BHP’s petroleum unit, which has transformed it into a top 10 global energy producer with over 2 billion barrels of reserves and annual earnings of nearly US$5 billion.

Analysts at broker Morgans recently reiterated an "Add" rating on the merged company along with a price target of $32.90 a share, and a forecast for FY22 dividend of $2.56 per share.

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If you are keen to buy shares in Woodside Energy or Santos, you can invest through an online share trading platform.

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