Santos, Woodside, and Oil Search Share Prices Crushed in Price War

Santos, Woodside, and Oil Search Share Prices Crushed in Price War

Three of the largest oil producers on the ASX 200 Index have had any share price gains made in the past year completely wiped out, as oil prices plunge on the back of the Saudi-Russian price war.

The share prices of Santos Ltd [ASX:STO], Woodside Petroleum Ltd [ASX:WPL], and Oil Search Ltd [ASX:OSH] recorded 12-month losses of 28.28%, 36.70%, and 57.34%, respectively.

Monday alone saw Santos fall 26% to a two-year low of $4.96, Woodside Petroleum dropped 18.3% to a 15-year low of $21.83, and Oil Search fell 32.5% to a 13-year low of $3.44.


Source: Trading View

Oil now hit by coronavirus panic selling

On Monday, crude prices plunged to their biggest daily loss since the 1991 Gulf War, as top producers Saudi Arabia and Russia began engaged in a tit-for-tat battle on prices.

Oil prices slumped nearly 25%, triggering panic selling and heavy losses on many of the global indices, as fear surrounding the coronavirus continues to hint that a global recession is on the cards.

Both Saudi Arabia and Russia said they would raise oil production, after a three-year pact between them and other major producers to limit supply disintegrated on Friday.

Much like the way tariffs were levied during the trade war, oil producing countries could look to raise supply and cut prices to compete.

Crude Oil Price Movement

Source: Reuters

Santos began the year positively with annual free cash flow coming in at a record US$1.1 billion, and a 10% boost to product sales in FY19.

The company also reported a final dividend of five US cents per share, to bring the full-year dividends to 11 US cents in total — a boon for income investors.

While WPL and OSH both recorded lacklustre results for FY19 due to a fall in global energy prices, both companies still paid shareholders a significant dividend.

These generous dividends now appear to be under threat. As the banks slash their oil price outlook for this year, oil producers are going to have their margins squeezed even further.

UK bank Barclays cut its forecast for Brent crude to $43 from $59 per barrel, and West Texas Intermediate to $40 from $54 previously. Morgan Stanley said it expected Brent crude to average $55 a barrel, down from $57.50 earlier, and WTI to trade at around $50 a barrel, down from $52.50.

And these might be a little overly optimistic too. If the American shale sector — which doesn’t belong to any output limiting pacts — ramps up its production, we could see oil prices remain far below the banks’ predictions.

According to a recent article, US shale is now under the pump — with a Commerzbank note recently pointing out that:

Many US fracking companies already had their backs to the wall before the price slump due to high debts and financing difficulties… drilling activity declined continuously until mid-January, and has since stagnated at a low level.

Gold and oil continue to diverge sharply

Gold Price vs Oil Price

Source: Trading View

Early last year oil got off to a reasonable start against gold.

But as uncertainty mounts, there has been a clear diverging trend between the price of gold and the price of oil.

In fact, Jim Rickards believes gold could reach US$10,000 per ounce within the next few years. He warns if you don’t consider owning gold soon, you do so at your own peril.

In this exclusive Daily Reckoning Australia interview, he reveals why it’s now more important than ever you add physical gold to your portfolio. Download the free report here.


Lachlann Tierney,
For The Daily Reckoning Australia