The Oil Price and Oil companies on the ASX are down today.
At time of writing, the share price of Beach Energy Ltd [ASX:BPT] has dropped by 1.916%, Woodside Petroleum Ltd [ASX:WPL] is down 0.32%, Santos Limited [ASX:STO] decreased by 0.306% and Oil Search Limited [ASX:OSH] is down by 0.751%
Oil prices dropped overnight after a report from the US Energy Information Administration (EIA) showed that US crude oil inventories had increased more than expected.
According to the EIA, crude oil inventories rose 800,000 barrels from the previous week. Inventories are now about 4% higher than the five-year average for this period of the year.
Both West Texas Intermediate (WTI) and Brent Crude initially dropped by over 1%. Yet they have somewhat recovered since. WTI was trading at US$58.85 and Brent at $63.98, at time of writing.
What could happen next for the Oil Price?
While the US is reporting higher supplies than expected, the OPEC+ group also recently agreed on cutting 500,0000 barrels per day in the first quarter of the year which could boost oil prices. The big question here is if members will keep to their part of the agreement.
A recent report from Bloomberg published before OPEC+ announced the cuts indicated that Saudi Arabia was looking to get stricter on this.
As Bloomberg reported:
‘For the last year, Saudi Arabia has largely turned a blind eye to cheaters within the OPEC+ alliance, cutting its own output more than agreed to offset over-production from the likes of Iraq and even Russia. Now, Riyadh’s had enough.
‘Prince Abdulaziz bin Salman, who took over from Khalid Al-Falih in September, will likely use his first OPEC meeting as Saudi oil minister next week to signal OPEC’s dominant producer is no longer willing to compensate for other members’ non-compliance, according to people familiar with the kingdom’s thinking.’
The main concern here is that oil prices could be getting hit from both sides. On one hand higher inventories means more supply, on the other, demand could suffer a hit in the future if the global economy slows.
With volatility hitting oil prices, it’s not surprising that some energy companies are offering dividends to compensate for risk.