Oversupply fears drag Crude oil prices; 3 ASX oil stocks under lens

By - Nitish Kumar


  • OPEC and U.A.E reached a truce when latter’s demand to boost oil supply got a nod from the member nations.
  • Oil prices slipped amidst fear of an increase in supply; WTI futures dropped to ~US$71/bbl while Brent August contract traded at US$73.38/bbl.
  • S crude oil inventory decreased by 7.9 Mbbl at the end of the second week of July as compared to the previous week’s numbers.

The crude oil prices slipped during the week after the OPEC members reached a truce with U.A.E on lifting oil pumping limits. The WTI August futures contract slipped to US$71/bbl on Thursday, 15 July 2021. The market reacted to fears of oversupply of the oil. The oil prices have had a remarkable journey from US$30/bbl during the peak of the pandemic to US$75/bbl lately on the backdrop of production cuts implemented by the OPEC+ member nations.

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Read here: Why are crude oil prices on fire in 2021?

The member nations of OPEC+ had agreed to the production cuts when the demand for crude oil bottomed last year. The 18th OPEC meeting was stalled over production issues when U.A.E took a stand to increase its daily output from the current levels of 3.17 Mbbl/day.

Good read: How does OPEC Control crude oil prices?

Saudi Arabia wanted to continue the trimming of production to support the oil prices. It is also evident that any production increase from any member country will trigger a competition to capture bigger market share among the producers. For the time being, Saudi Arabia and member nations have agreed to U.A.E’s demand to increase the production up to 3.65 Mbbl/d.

Read: How is crude oil extracted?

Further decisions on production output will be taken during the next OPEC+ meeting, and it will be interesting to see what Russia has to say on increasing the output. Any production hike decision will not oversupply the market in the coming days. As per the sources, the oil supply will be raised only after April 2022.

On the other side of the planet, the Energy and Information Administration (EIA) reported a drop in weekly inventory of crude oil by 7.9 Mbbl. Also, the U.S. had increased its crude import by 347,000 bbl/d during the reporting week.

Although the data from the U.S. signals that crude oil prices will soar higher, the market is keenly watching the developments in OPEC+ countries. The market has already factored in the fear of oversupply. For the coming weeks, the market will decide its trend based on the actual demand and supply data and how the prices are going to react to it.

In the backdrop of the current crude oil scenario, lets examine a few crude oil-based ASX listed stocks.

Woodside Petroleum Limited

Woodside Petroleum (ASX:WPL) reported a sales volume of 2.47 Mbbl during the June quarter. The Company realised an average crude oil price of US$75/bbl during the quarter leading to a total revenue of US$54 million from crude oil only. The total revenue was US$1.327 billion during the quarter.

Also read: Amidst better crude oil prices, Woodside (ASX:WPL) & Santos (ASX:STO) revenue rises for the quarter

The falling crude oil prices in the international market have dragged the share price of Woodside too. The shares of the Company are trading at AU$22.73, down by 1% from yesterday’s closing price. The shares of the Company have yielded a decent return of 11% in the last one year.
As on 16 July 2021, WPL has a dividend yield of 2.24%.

 Oil Search Limited

Oil Search (ASX:OSH) owns and operates oil and gas assets in Papua New Guinea (PNG). Oil Search had reported crude oil production of 693,000 bbl for the March quarter contributing US$78 million (oil+ condensate) to the Company’s revenue.

The Company has set a target to boost its free cash flow to US$1.5-2 billion by the year 2030 from current levels of US$13 million.

Also read: Oil Search Ltd (ASX:OSH) clocks a 16% operating revenue growth courtesy oil price recovery

OSH is trading at AU$3.875 as of 16 July 2021 with a market cap of AU$8.08 billion. The shares of the Company have delivered a handsome return of 29% to its shareholders in the last one year. 

BHP Group

The energy and resources behemoth BHP Group (ASX:BHP) has oil and gas assets in different parts of the world, including the Gulf of Mexico, Canada, Barbados, Trinidad & Tobago and Mexico. During the March quarter, BHP reported production of 10,091 Mboe of crude oil and condensate.

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Rising crude oil prices and a stronger iron ore, copper and other base metal prices are all contributing to the higher revenues of the Group.

To know more, read more: BHP fires on twin cylinders, Iron ore and Copper scale new highs

On 16 July 2021, BHP was trading at AU$51.68 with a minor gain of 0.3%. The mining major has delivered an impressive return of 37% to its shareholders in the last 12 months.