Why is the Woodside (WPL) share price stumbling?
Shares in the oil and gas giant have climbed more than 17% in the past month so why are they struggling today?
Shares in oil and gas producer Woodside (ASX: WPL) remain among the top traded shares on the ASX, but progress has stalled since the stock hit a 2-year high last week.
The stock was quite volatile in early trading, dropping almost 1% before reversing part of the losses. Rival Santos (ASX: STO) also dropped 0.5%.
Why is the Woodside stock price reversing course?
Both Woodside and Santos have surged in recent weeks in response to oil prices hitting their highest level since 2008, after the United States banned Russian oil imports over the Ukraine invasion, raising fears of significant disruption in global crude oil supply.
While that factor continues to weigh on the market, oil prices slipped to below US$100 a barrel overnight, for the first time in several weeks. Brent crude futures for delivery in May slid 6.5% to US$99.91 a barrel, while the US benchmark West Texas Intermediate also dropped 6.4% to US$96.44 a barrel.
The retreat in prices is largely being attributed to worries about growth in China as the world's second largest economy places tens of millions of people under lockdown following the latest surge in COVID-19 cases. Analysts are concerned about the resulting hit to oil demand.
The US Federal Reserve is also widely expected to raise interest rates by 25 basis points on Wednesday, which could strengthen the US dollar and dampen demand for commodities including oil, which are all priced in greenbacks.
There is also hope for some diplomatic resolution of the Russia-Ukraine crisis, while progress in the stalled nuclear deal talks with Iran means the country could be closer to resuming supplies to the market.
The combination of these factors has led local oil stocks to drop in line with the falling oil prices.
Traders still believe any decline in crude oil prices is likely to be short lived given the tight state of global crude inventories and ongoing uncertainty surrounding Russian crude.
That would be beneficial to the 2 Australian oil and gas producers. Macquarie analysts recently estimated earnings at Woodside and Santos could more than double if oil prices stay above US$100 a barrel.
Both companies are also likely to cash in on the global shortfall in LNG supply as global energy giants BP, Exxon Mobil, Equinor and Shell exit from Russia, creating a shortfall of more than 100 million tonnes in Europe over the medium term.
Higher prices will lift LNG supply, with high demand likely to allow Woodside and Santos to sell at a higher price. This will allow them to sell-down their assets and the high price will allow them to develop new projects including the Scarborough gas project off Western Australia and the PNG LNG project.
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