Why are the Woodside (WPL) and Santos (STO) share prices soaring?
Shares in the oil and gas firms have jumped 5–20% in the last 1 month, continuing their momentum this morning.
Shares in Australia's 2 largest oil and gas companies Woodside (ASX: WPL) and Santos (ASX: STO) are the best performers on the ASX boards on Monday. At the time of writing, the 2 stocks were up 6.2% and 5.3% respectively.
What is pushing up the Woodside and Santos stock prices
The latest jump in Woodside and Santos shares comes after benchmark crude oil prices soared to their highest level since 2008, with Brent crude surging past US$139 a barrel overnight.
Brent prices were still up 9.9% at US$129.78 a barrel, with traders attributing the gains to delays in the potential return of Iranian crude to global markets and reports that the United States and European allies are considering direct sanctions by banning imports of Russian oil 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. Analysts at Bank of America say if most of Russia's oil exports are cut off, there could be a global shortfall of 5 million barrels or more, likely resulting in oil prices doubling to US$200 a barrel.
Meanwhile, Iran will take several months to restore oil flows even if it reaches a nuclear deal with Western countries.
The massive rise in crude oil prices would prompt a rethink of the outlook for economic growth and inflation across the world. However, it would be immensely beneficial for oil producers, including Australia's 2 biggest oil and gas companies.
Macquarie analysts last week estimated that with oil prices at US$100 a barrel and liquefied natural gas (LNG) at US$30 per million British thermal units, Woodside's earnings could jump by 149% while Santos' would rise by 113%. Prices have in fact already risen far beyond that level.
Meanwhile, Woodside and Santos will also cash in on the global shortfall in LNG supply over sanctions by the US, UK and Europe.
Russia supplies 30 million tonnes a year of LNG annually, which makes up about 8% of the world supply. Global energy giants BP, Exxon Mobil, Equinor and Shell have already exited from Russian oil and gas operations, and the country's LNG supply could dwindle in the next few years due to lack of investment, technology and expertise.
Credit Suisse estimates European buyers may have to look for more than 100 million tonnes a year of LNG, and with planned expansions in Qatar and the US not being enough to meet this demand, investors would be betting Australian producers can claw market share.
The Russia situation could also lift LNG supply and demand fundamentals in a way that allows Woodside and Santos with asset selldowns and development of new growth projects, including the Scarborough gas project off Western Australia and the PNG LNG project.
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