Crude oil spot prices experienced a strong resurgence last week with the rally looking to continue through this week too.
It’s welcome news for shareholders of Australian oil stocks, which have revelled in the resurgent oil price.
Woodside Petroleum Ltd [ASX:WPL] shares have jumped 4.03% or $1, trading at $25.81 per share — its highest price since the March market crash.
However, with the demand side of oil still looking a little shaky, I thought it would be worthwhile taking a fresh look and what the future holds for WPL shares.
‘Probably due for a correction’
If you’re a little relieved that your oil stocks are making a comeback or are hyped over the nice short-term gains you’ve made, it might be time to gear up for an oil price correction.
Analysts have warned that if the speculator-driven rally is not backed by stronger demand for fuel then oil prices could give back recent gains.
Last week, the world’s biggest oil exporter agreed to make additional, voluntary oil output cuts of one million barrels per day in February and March.
Cuts that are intended to whittle down the world’s crude oil stockpiles, driving up prices.
The catch is that the demand for oil is looking shaky.
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Parts of south-east Queensland resembled ghost towns over the weekend as the state government ordered a three-day lockdown.
Overseas, the UK imposed new countrywide lockdowns and Tokyo declared a ‘soft’ state of emergency.
China also reported the biggest rise in daily cases in more than five months.
The question is whether the OPEC+ has the tools to prevent a crash in oil prices.
Outlook for Oil and the WPL share price
With Saudi Arabia promising to limit production through February and March, crude prices could remain propped up for another few weeks.
Though the world’s mobility restrictions could hurt oil prices in the coming month, especially if no new production agreement is reached.
As for the WPL share price, its shift into natural gas could help shield it from a correction in the oil price.
LNG spot prices have reached historic levels in recent weeks.
Demand for LNG is growing faster than for any other fossil fuel as nations look for a cheap, reliable and cleaner alternative.
In my opinion, the oil price won’t crash but I do think we could see them return to more reasonable levels because I don’t see demand supporting current levels.
But with the support of strong LNG prices, Australian energy stocks could continue to see decent gains throughout 2021.
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