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Why are the Woodside (WPL) and Santos (STO) share prices lifting?

Posted: 17 May 2022 1:18 pm

Shares in the 2 top oil and gas firms have climbed 19-35% over the last 6 months.

Shares in Woodside (ASX: WPL) and Santos (ASX: STO) are among the top traded stocks on the ASX on Tuesday. The 2 stocks were up 1.7% and 2.1% respectively at the time of writing.

What's pushing up the Woodside and Santos stock prices?

The latest gains in Woodside and Santos shares comes from a fresh rebound in global oil prices.

Brent crude futures jumped 2.4% overnight to US$114.24 a barrel, while US WTI crude was up 3.4% to US$114.20 a barrel.

The lift comes over optimism that China, one of the world's biggest energy consumers, could see demand recovery after positive signs that the Asian giant's coronavirus pandemic is receding.

Authorities have announced this week that financial capital Shanghai will broadly reopen and allow normal life to resume for the city's 25 million people from 1 June. Authorities note COVID cases have been eliminated from 15 of the city's 16 districts.

The rapid spread of the outbreak in China has been a major dampener for world trade, especially due to the government's pursuit of a COVID zero strategy that has seen entire cities locked down, affecting trade and commerce, and bruising global supply chains.

Data showed China processed 11% less crude oil in April, largely because of an unexpected sharp fall in industrial output due to lockdowns.

Stronger outlook

Woodside and Santos are set to benefit from the ongoing spike in oil prices, as both Australian producers realise better prices and also cash in on the global shortfall in LNG supply. Analysts estimate earnings at the 2 companies could more than double if oil prices stay above US$100 a barrel, as they have for months now.

It comes in the backdrop of a sharp rise in prices since February when most Western nations banned Russian oil imports and imposed a raft of tough sanctions over its invasion of Ukraine.

Russia is the world's second biggest energy exporter, supplying around 7 million barrels a day of oil and refined products, or 7% of global supply. The restrictions have raised fears of a supply shortfall in the near term, lifting prices.

Meanwhile, Woodside is also seeing a boost from its ongoing US$42 billion merger with BHP's petroleum unit, which both companies have reaffirmed is on track to be completed by 1 June.

Woodside has also secured approvals for its $16.5 billion Scarborough LNG project off Western Australia, allowing it to develop plans to tap the project's major fields.

At the same time Santos, which recently merged with Oil Search, is also much better placed to benefit after managing to reduce its break-even level and movement in development of projects such as Darwin LNG.

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Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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