Energy Crunch | Woodside Petroleum

8 October 2021

Global markets were higher overnight, US market (S&P 500 index, +0.8%) as lawmakers reached a deal to increase the debt ceiling through to early December, which had been an overhang on the market for recent weeks.

Also helping sentiment was weekly jobless claims which fell sharply last week as the enhanced unemployment benefits ended, and initial filings for unemployment benefits totaled 326,000 for the week ended October 2, below the 345,000 Dow Jones estimate and a drop from the previous week’s figure of 364,000.

Gains were broad based with all sectors in the green except for utilities, with technology and reopening plays both performing well.  

European Markets (Stoxx 600 index, +1.6%) jumped, helped by the easing of oil and gas prices after President Putin's offer to boost European gas supplies relieved inflation concerns and all sectors trade in the green. As shown below, energy prices have surged higher, with supply shortages and panic buying of petrol and natural gas across the UK and Europe. 

Woodside Petroleum (WPL:ASX)

Oil and LNG producer Woodside Petroleum has had a volatile few months, slumping in August after releasing a weak-ish half year result as well as announcing their merger with BHP’s oil and gas business.

Fortunes for WPL changed over September as it rallied strongly on the back of oil prices staging a recovery amidst growth in demand and OPEC+ maintaining productions level, flat which saw energy commodity prices rise to three-year highs: 

The recovery in oil price is encouraging combined with the forecast shortfall in supply for LNG – WPL’s quality LNG growth projects are the main catalyst in terms of maintaining our BUY recommendation.

With a strong balance sheet and with hopefully the worst from covid-19 behind us, we feel comfortable at today's valuation assuming oil prices remain supportive around current levels. However, we have a high-risk caveat given the volatility in the oil price given its recently rally, and challenges the sector may face from an ESG investment point of view.

Australia & New Zealand Market Movers

The Australian market was up on Wednesday (ASX 200 index +0.7%) taking a solid lead from Wall street.

All sectors were up except for energy, which took a breather given the impress run recently as President Putin announced they would increase gas supply to ease the commodity price. 

Similar to Wall Street, Tech stocks led gains as investors bought the recent dip with buy now pay later stocks enjoying a particularly strong session. US focused BNPL company Sezzle surged +14.6% heading into key shopping US shopping season as it will benefit from its previously announced partnerships with Target.

Commonwealth bank shares were flat, but the other 3 major lenders were up strongly.

The New Zealand market was down again yesterday (NZX 50 index, -0.5%) for the third consecutive day due to weak sentiment across global equity markets as well as central banks globally being to tighten their monetary policy.

Dairy stocks led the market lower – with Fonterra down -3% as farmgate milk prices are forecasted to rise further, while class action woes saw A2 Milk slip another -2.2%. 

Utility stocks were mostly weaker as interest rate hikes globally weighed on the market, Mercury down -2%, Contact slipping -1.6%, Meridian fell 1% and Spark down -1.5%. 

Fletcher building was up +1%, despite weak outlook from the building sector, it was estimated the current lockdown would only have  a minor impact to earnings apposed to the first national wide on early last year. 

3 Things Markets will be Watching this Week

  1. Key events this week include RBNZ rate call this Wednesday, and RBA decision this Tuesday.
  2. ​US Non-Farm Payroll Data due later this week (monhtly employment figures)
  3. Covid and lock-down related news flow both sides of the Tasman.
Global markets were higher overnight, US market (S&P 500 index, +0.8%) as lawmakers reached a deal to increase the debt ceiling through to early December, which had been an overhang on the market for recent weeks.

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