Oil prices plunges to 7-month low: Woodside unphased, Beach Energy extends losses

Oil is aggressively giving back its post-invasion gains, down more than -5% in the last two sessions. The once supply tight and solid demand narrative is starting to show cracks following bleak US manufacturing data and a string of weaker-than-expected numbers out of China. 

The S&P/ASX200 Energy Index is down an outsized -1.15%, with Beach Energy (ASX: BPT) and Woodside (ASX: WDS) down -5.05% and -1.75% respectively.

WTI Crude Oil (Source: TradingView)

Why are oil prices free falling?

#1 China weighs on crude outlook

China's economic slowdown deepened in July, signalling that June was just a one-off post lockdown rebound. Data released on Monday afternoon including industrial production, fixed asset investment and retail sales all missed expectations by a rather wide margin.

The property slump worsened in July, with residential property sales down -28.6% year-on-year and property investment down -12.3%, the fastest rate of decline this year.

#2 Iran nuclear deal still in play The Iran deal appears back in play after Iranian Foreign Minister Hossein Amir-Abdollahian said they will inform the EU of its "final thoughts" on a draft to revive the 2015 nuclear accord by Monday night.

While the deal remains in limbo, it teases at the possibility of restoring Iranian oil exports to global markets.

#3 US Empire State Manufacturing Index plunges

Business activity declined sharply in New York, according to firms responding to the August 2020 Empire State Manufacturing Survey.

The headline general business conditions index tumbled from 42 to -31.3 points. "New orders and shipments plunged, and unfilled orders declined. Delivery times held steady for the first time in nearly two years, and inventories edged higher," the report said.

"Looking ahead, firms did not expect much improvement in business conditions over the next six months.

Source: Empire State Manufacturing Survey

#4 OPEC sees a surplus

OPEC downgraded its oil demand outlook for the second half of 2022, citing "expectations of a resurgence of covid restrictions and ongoing geopolitical uncertainties," in its Monthly Oil Market Report.

OPEC expects global oil markets to flip into surplus territory in the September quarter as it lifted production estimates for cartel members like Libya.

Woodside: Complete unphased

Looking at the Woodside chart in isolation, investors might assume oil is still trading around US$110 a barrel.

Woodside seem mostly unphased by the slump in oil prices, perhaps in anticipation of a strong half-year 2022 result later this month (30 August).

Woodside share price chart (Source: TradingView)

Beach Energy: From bad to worse

Beach Energy shares tumbled -11.1% on Monday after a weaker-than-expected full-year result and underwhelming outlook. In summary:

• Revenues rose 13% and profits jumped 39%

• Dividends were flat at just 1 cent per share

• FY23 production is forecast to rise/fall somewhere between -8% and 3%

• FY23 capex within the range of $800m to $1bn, up from $872m in FY22

• Unit operating costs between $12-13 a barrel, up from $11.74 in FY22

Technically, Beach Energy is still trading within its longstanding range between $1.90 and $1.50. Will a combination of lower oil prices and the weak result see its stock break lower?

Beach Energy share price chart (Source: TradingView)