The world’s hunger for oil continues.
The post The Santos (ASX:STO) share price is leaping 5% higher today. Here’s why appeared first on The Motley Fool Australia. –
The Santos Ltd (ASX: STO) share price is climbing higher today, up almost 6% in afternoon trading.
Yesterday we had a look into why S&P/ASX 200 Index (ASX: XJO) energy shares like Santos could be well-positioned to outperform this year.
Today, here’s a brief follow up.
What’s driving the oil price to multi-year highs?
After crashing to lows of US$21.40 per barrel on 24 April 2020 in the wake of pandemic-driven global lockdowns, crude oil is trading at multi-year highs today.
West Texas Intermediate (WTI) crude is at levels not seen since October 2018. International benchmark Brent crude is also at multi-year highs, currently trading at US$70.68 per barrel. That’s up 0.6% since I penned yesterday’s article and up 8.5% since 20 May.
The rising crude price, and soaring Santos share price, reflects resurgent demand from a reopening world. This has been spurred by dwindling crude stockpiles and a sluggish uptick in new supply from US shale producers.
And, of course, there’s OPEC+, which includes Russia.
The organisation, led by Saudi Arabia, delivered large supply cuts during the past year. Only recently has it been moving to carefully open the taps a little wider.
As Bloomberg reports, “OPEC+ ministers agreed Tuesday to press ahead with an increase of 841,000 barrels a day in July, following hikes in May and June…”
OPEC did not comment on its output expectations beyond July.
Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman stoked energy bulls’ sentiment by adding that demand for crude “has shown clear signs of improvement”.
One factor that’s been weighing on oil investors’ minds is Iran. Namely, whether the oil-rich nation will work out its nuclear agreement with the United States. That would likely see US sanctions on Iran’s oil exports lifted, and could add enough supply to global markets to sink prices.
But as Bloomberg noted, there “was an indication that talks to revive a 2015 nuclear accord with Iran has been delayed for now. An Iranian official said a deal is now expected to be finalised in August.”
COVID-19 remains the big wild card for oil prices in the months ahead. If the world can stay ahead of the virus and continue on the path of reopening, crude oil prices and ASX energy shares could continue to enjoy some strong tailwinds.
Santos share price snapshot
With today’s intraday gains factored in, the Santos share price is up 32% over the past 12 months, outpacing the 23% gains posted by the ASX 200.
Year-to-date, the Santos share price has continued to outperform, up more than 13% so far in 2021.
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