Global markets generally made gains overnight, although the energy sector sold off after the highly-anticipated Organization of the Petroleum Exporting Countries (OPEC) meeting disappointed investors.
While OPEC did extend oil production cuts for another 9-months, there was disappointment that Saudi Arabia failed to deepen the cuts. Given markets were expecting something more, the price of oil fell about 4% overnight.
As we have discussed in the past, there have been a number of positive developments for the oil industry since the turmoil experienced in early 2016, including OPEC’s dramatic change of stance to curb oil output. However, our view has been that prices will cap out at around the $50-$60 level in the near term primarily due to the impact of US shale gas producers increasing production. As a result, we bought selected ASX oil exposures in April 2016 – namely Woodside Petroleum (WPL.AX) has been our top ASX energy play.
Woodside Petroleum (WPL.AX)
Oil & Gas producer WPL has recently announced that while its revenue fell -19% to $4,075m for the 2016 financial year on the back of lower energy prices. WPL managed to generate free cash flow of $114m despite two significant acquisitions and a dividend. The company also lowered its production costs right down with unit costs of $5/barrel. For the year ahead, WPL forecasts cashflow breakeven at $35/barrel for oil, so as long as current prices are maintains 2017 should be a profitable year.
WPL has been our top energy sector pick, on which we have made solid returns since we bought it in April 2016. Sign up below to access more of our top picks for FREE.