Crude Oil

3 things for Woodside, Santos and Beach Energy investors to consider

Mon 01 Aug 22, 12:11pm (AEST)
Oil - Oil rigs and supply vessels at sea
Source: iStock

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Key Points

  • Oil prices are running into some short-term headwinds amid recession fears and profit taking
  • OPEC+ is expected to recover all its output cuts during the pandemic in August

Oil prices have started to set lower lows as recession fears settle in and traders begin to take profits any signs of short-term strength.

A -6% selloff on 17 June witnessed a subtle change in the way that oil trades, with the 20-day moving average (red) now acting as a key area of resistance for oil prices.

Further weakness was exhibited last Friday, when WTI briefly rallied 4.7% to US$101.9 before closing the session just 1.05% higher at US$98.3.

Oil Woodside Energy and Beach Energy price charts
Source: TradingView

Still, local oil names like Woodside (ASX: WDS) and Beach Energy (ASX: BPT) have held up relatively well and less than -10% away from recent highs.

As oil continues to try a floor, here are three things for investors to consider.

Recession or not

The US economy entered technical recession territory after GDP contracted for a second consecutive quarter, down -0.9% between April and June.

"The technical recession was not declared official, considering that the US labor market remains healthy, but tighter conditions ahead suggest that such risks remain prominent," according to IG, S&P Global Platts reported.

Likewise, Bank of America analysts said the recent debate about the US recession is a "distraction", adding that "Rip roaring payroll, strong Gross Domestic Income (GDI) and strong final sales all suggest 'recession' is still a forecast, not a reality." "With no major signs of fuel demand destruction, oil seems like it will soon find a home above the $100 a barrel mark," noted Oanda senior market analyst, Ed Moya.

OPEC+ standstill

OPEC+ will meet on Wednesday to decide on its September output.

Two of eight OPEC+ sources said a 'modest increase' for September will be discussed, while the rest said output would be held steady, according to Reuters.

Still, the start of August will see OPEC+ having fully recovered the record output cuts it put in place during the height of the pandemic.

Even then, the petroleum organisation is struggling to hit its quotas due to years of underinvestment, the lack of spare capacity and infrastructure issues.

OPEC+ was producing 2.84m barrels a day below its collective June production target or compliance of 320% compared to 256% in May.

Oil giants: A half to remember

It's quarterly reporting season in the US and oil giants like Shell, Exxon Mobil and Chevron are printing cash thanks to surging oil prices.

Here are some interesting snippets from their earnings transcripts:

  • Shell: "In H1 22, our adjusted earnings are up 65% compared with H1 2013... Our organic free cash flow tripled, and we have doubled our shareholder distributions. In fact, this quarter, our cash distributions were the highest ever"

  • Shell: "Where we are today, there is more upside than downside when it comes to the oil price. Demand hasn’t fully recovered yet"

  • Exxon: "We are now experiencing tight markets across most of our businesses as supply lags demand recovery. We clearly see the tightness in supply in refining, where the closure rate during the pandemic was 3x the rate of the 2008 financial crisis"

 

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Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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