Why have Woodside (WPL) and Santos (STO) share prices rebounded?

Posted: 18 March 2022 12:31 pm
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Shares in the oil and gas firms have jumped 44% and 20% in the last 6 months but struggled during the last few days of trading.

Shares in Woodside (ASX: WPL) and Santos (ASX: STO) are among the top performers on the ASX on Friday.

The 2 stocks were up 4% and 2.1% respectively in early trading and are again close to their highest levels in 2 years.

Why are the Woodside and Santos stock prices on a high?

Woodside and Santos shares have jumped after oil prices again rebounded 8% above US$100 a barrel after a brief lull, extending the volatility seen over the past several weeks.

Benchmark Brent crude futures rose 8.8% to US$106.64 a barrel, its largest percentage gain since mid-2020, after renewed focus on supply shortages in coming weeks due to sanctions on Russia. US West Texas Intermediate (WTI) crude was up 8.4% to US$102.98 a barrel.

So far, the United States has banned Russian oil imports over the Ukraine invasion and the UK has pledged to phase them out by year end, decisions that will significantly disrupt the global energy market.

The International Energy Agency estimated that 3 million barrels per day (bpd) of Russian oil and products could be shut from next month, as a result.

Morgan Stanley has also predicted a fall in Russian production by about 1 million bpd from April and raised its Brent price forecast by US$20 to US$120 a barrel.

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.

Higher profits, investments

The bull run in oil prices is likely to be immensely beneficial for oil producers globally, including Australia's 2 biggest oil and gas companies.

Earnings at Woodside and Santos could more than double if oil prices stay above US$100 a barrel, Macquarie analysts recently estimated, as both producers realise better prices and also cash in on the global shortfall in LNG supply.

Russia supplies 30 million tonnes a year of LNG annually, but this supply is likely to be disrupted over the next few years due to the sanctions.

Australian producers of LNG are in a prime position to boost supplies at a time when higher prices lift LNG supply and demand fundamentals in a way that allows Woodside and Santos with asset sell-downs and development of new growth projects.

That expectation was underlined this week after Exxon Mobil and BHP (ASX: BHP) announced they will proceed with a $400 million project to boost gas output from their Gippsland Basin Kipper field off southeast Australia, to fill the looming gas shortfall.

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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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