Why are Woodside (WPL) and Santos (STO) share prices at a 2-year high

Posted: 9 March 2022 2:11 pm
News
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Shares in the oil & gas firms have surged in the last month continuing their strong performance today.

Shares in Woodside (ASX: WPL) and Santos (ASX: STO) are again among the best performers on the ASX on Wednesday. The stocks were up 2.5% and 1.5% respectively in early trading and have now hit their highest levels in 2 years.

Why are the Woodside and Santos stock prices climbing

Woodside and Santos shares are reacting to news that the United States had banned Russian oil imports over the Ukraine invasion and Britain will phase them out by year end, decisions that will further disrupt the global energy market.

A delay in nuclear deal talks with Iran also means the major oil producer will take several months to restore supply.

As a result, benchmark Brent crude rose 4% to $US127.98 a barrel overnight, and are trading at their highest level since 2008. Oil prices have already surged more than 30% in the past 2 weeks since Russia invaded Ukraine and the US and western allies imposed a raft of tough sanctions.

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. Russian officials are already warning of oil prices at US$300 a barrel, but analysts believe prices could climb up to US$200 a barrel if most of Russia's oil exports are cut off.

Earnings outlook

The bull run in oil prices is all set to result in higher prices across the board for consumers, as the Reserve Bank of Australia governor Philip Lowe warned on Wednesday. But they would be immensely beneficial for oil producers worldwide, including Australia's 2 biggest oil & gas companies.

Earnings at Woodside and Santos could more than double if oil prices stay above US$100 a barrel, Macquarie analysts estimated last week, as the 2 producers realise better prices and also cash in on the global shortfall in LNG supply.

Russia supplies 30 million tonnes of LNG annually, making up about 8% of world supply. With global energy giants BP, ExxonMobil, Equinor and Shell exiting from Russian oil and gas operations, that country's LNG supply is likely to be disrupted over the next few years due to lack of investment and technology.

As a result, analysts expect a shortfall of more than 100 million tonnes in Europe, with Australian producers of LNG in a prime position to boost supplies.

Higher prices will also lift LNG supply and demand fundamentals in a way that allows Woodside and Santos with asset sell-downs and development of new growth projects, including the Scarborough gas project off Western Australia, and the PNG LNG project.

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