Higher oil prices to bring stability to sector

Higher oil prices to bring stability to sector


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Things are looking up for the energy sector after a tough two years.

Things are looking up for the energy sector after a tough two years.

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The energy sector has been a painful space for over two years now.

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IN SEPTEMBER we saw US 10-year bonds initially increase in yield and then fall back sharply. The US equity market continued to trade in a narrow band as investors decided whether an impending rate rise signals earnings growth, or the end of the long term bull market. Commodity prices continued to improve with the exception of oil and the Australian dollar prolonged its positive run against most major currencies.

The S&P/ASX 200 Accumulation Index increased by 0.5 per cent as the market started to sense the possibility of earnings growth in 2017. 

We have experienced a significant move away from yielding stocks. The perception of a low in bond yields is still in place and we see no reason to chase yield over cyclically biased companies. I remain positive on resource stocks and am beginning to look for potential opportunities in the energy and mining services sectors.

The energy sector has been a painful space for over two years, but positive signs are beginning to emerge. This should should help support higher oil prices over the longer-term and bring more stability to the sector. In addition, the recent decision by the Organisation of the Petroleum Exporting Countries to cap production should also help support oil prices shorter-term as full details are yet to be disclosed.

I continue to view Woodside Petroleum Limited as one of the higher quality operators backed by a strong balance sheet, albeit with less growth over the shorter horizon vs. peers. I believe management can deliver on this over time in a measured and considered manner. 

*Christopher Hindmarsh is an adviser at JBWere Limited which is owned by NAB. This article contains general advice only. Contact (02) 9325 2639.

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