Need for patience with oil stocks

While oil prices are up, the returns for Australian oil producers have been muted since the start of the year with Santos being the standout performer.

The price of brent crude oil had risen almost 30% since the start of the year, rising from US$51.8 per barrel to $66 per barrel.

According to FE Analytics, Santos rose 13% but Oil Search had risen just 2% and Woodside Petroleum and Ampol were both negative. Meanwhile, the energy sector was up in January but down 4% year to date.

Wealth Within chief analyst, Dale Gillham, said the impact of COVID-19 on certain countries had reduced demand for the commodity.

“Coronavirus cases have dramatically increased in India, which is one of the world’s largest importers of oil and, as a consequence, the demand for oil in India has fallen strongly. However, as the rest of the world is starting to open up, there is greater demand for oil, which is currently outstripping supply,” he said.

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However, he said demand was likely to rise for Australian producers in the near term but that investors would need to “be patient” if they held oil stocks.

“So, with strong demand for oil are Australian oil and gas producers set to rise? The answer is most likely yes and I believe Santos is well placed to continue its upward trajectory. I also believe Woodside, Ampol and Oil Search will do well in the second half of 2021,” Gillham said.

“That said, you may need to be a little patient with the latter three stocks, as they may experience some short term falls before rising into the end of 2021.”