S&P/ ASX 200 energy index surged in the market as crude oil prices took recovery over the comments from the newly appointed Saudi energy minister. Apart from that, the commercial crude oil inventory in the United States witnessed a drawdown despite steady domestic production and higher imports.
The ASX-listed energy stocks relished over the gain in crude oil prices and charged higher on the Australian Securities Exchange.
Saudi Reluctant to Normalise the Supply Chain:
In its last monthly meeting, the Organisation of Oil Exporting Counties (Or OPEC) and Russia decided to curb the production by 1.2 per cent of the global demand (1.2 million barrels per day), which in turn, supported the crude oil prices in the past.
In the status quo, the new energy minister of Saudi- Prince Abdulaziz bin Salman, one of the sons of the Saudi King Salman, mentioned to the media that there would not be any radical change in the oil policy of the oil kingpin, and OPEC would hold its stance to curb the production by 1.2 million barrels per day.
The oil bulls reacted quickly, and the Brent oil futures spiked from the level of US$57.23 (Day’s low on 3 September 2019) to the present high of US$63.76 a barrel, which in turn, underpinned the growth of approx. 11.40 per cent.
The Brent oil surged over the six weeks high to trade at US$62.84 (as on 11 September 2019 02:00 PM AEST).
The United States Drawdown:
Post a decline of 10.0 million barrels last week (for the week ended 23 August 2019), the commercial crude oil inventory in the United States further declined by 4.8 million (for the week ended 30 August 2019) to stand at 423.0 million barrels. At the current level, the commercial crude oil inventory in the United States is at the 5-year average.U.S. Commercial Crude Oil Inventory Weekly Change (Source: Thomson Reuters)
- The commercial inventory in the United States has witnessed a sharp decline from June 2019 amid higher exports and erratic domestic demand.
- The oil inventory in the United States declined (for the week ended 30 August) despite higher imports and steady domestic production, which in turn, suggested higher demand and supported the crude oil price.
Crude Trade Figures:
- Domestic oil production in the United States remained Steady.
- Domestic production for the week ended 30 August 2019 was at 12,400k barrels a day.
- The oil exports from the United States witnessed an increase to stand at 3,061 thousand barrels per day for the week ended 30 August 2019.
- The oil exports from the United States are rising consecutively since the beginning of the August 2019.
- The overall imports average around 6.9 million barrels a day for the week ended 30 August 2019, higher by 1 million barrels a day against the previous corresponding period.
In a nutshell, the higher imports in the U.S. coupled with steady domestic production supported the crude oil in the global market, which in turn, supported the ASX-listed energy players.
Australian Energy Sector:
The ASX-listed oil and gas explorers are welcoming the rally in the crude oil price and shining brighter on the exchange; however, the energy producers and retail suppliers in Australia are facing stricter regulations and are currently hammered by the new Default Market Offer (or DMO) from ACCC.
One such example is AGL Energy Limited (ASX: AGL), the stock nosedived in the market despite strong FY2019 as the company gave a negative outlook amid the new DMO. AGL plunged from the level of A$23.210 (Day’s high on 22 April 2019) to the level of A$19.120 (Day’s low on 26 August 2019), witnessing a 18% drop.
S&P/ ASX 200 Energy Index:
The market experts predicted a jump of 19.9 per cent for the energy sector until the second quarter of the year 2020. The S&P/ ASX 200 Energy Index is moving in line with the industry anticipation, and the index has already demonstrated an uptick of over 8.70 per cent from its recent low to the present level of A$10,773.300 (Day’s close on 10 September 2019).S&P/ASX200 Energy Index Daily Chart (Source: Thomson Reuters)
On the daily chart, the index, which rallied from the level of approx. A$9,170.244 to the level of approx. A$11,698, has now corrected over 61.8 per cent of the Fibonacci retracement level, and the index is currently facing a hurdle at the 200-day exponential moving average, which is at A$10,833.399.
Investors should monitor this level carefully as a sustain above the same could establish a short-term uptrend in the index.S&P/ASX200 Energy Index Daily Chart (Source: Thomson Reuters)
On following the wave motion and projecting the Fibonacci series from the points marked as 0,1, and 2 on the chart shown above, we can observe that the index is currently at the crucial resistance level of the 100.0 per cent projected level at A$10,791.504.
A break and sustain above the same could establish a short-term uptrend, while failure to do could again make the index to follow its original downtrend.
Index Outperformers:(Source: Thomson Reuters)
On a YTD basis, the S&P/ ASX 200 Energy Index has delivered a total return of 10.74 per cent, and many ASX-listed energy players outperformed the index in terms of total returns (including price and dividend return)
- Woodside Petroleum (ASX: WPL) delivered a total return of 11.16 per cent on a YTD basis
- Origin Energy Limited (ASX: ORG) delivered a total return of 25.79 per cent on a YTD basis
- Santos Limited (ASX: STO) delivered a total return of 45.24 per cent on a YTD basis
- Beach Energy Limited (ASX: BPT) delivered a total return of 87.55per cent on a YTD basis
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