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Date : 02/03/2022

Oil Price surge and its impact on the ASX Oil Stocks

Since Russia invaded Ukraine, it has had a significant impact on the international economy, particularly oil and gas prices. In addition to supplying about 30 percent of Europe’s natural gas, Russia is one of the world’s leading oil exporters, ranking second only to Saudi Arabia in terms of oil production. The escalation of geopolitical tensions between Russia and Ukraine has resulted in the stock markets collapsing and a significant increase in oil prices. This has had an influence on energy businesses all across the world.

The oil prices have climbed to their highest level in the last decade. The oil price has risen above $100 per barrel, marking the first time this has happened since the Arab spring of 2011. Even before Russia’s invasion, the oil price had been steadily increasing. However, economic sanctions on Russia may now be applied to compel the country to end its invasion of Ukraine.

These new economic sanctions on Russia would be unfavorable for them, and they would be prevented from exporting their oil to other countries. According to the statistical data, Russia’s crude oil production and natural gas condensation were around 10 million barrels per day in 2020. However, as a consequence of these economic sanctions, the worldwide crude oil supply chain would be disrupted, further increasing the already-increasing oil prices.

Effect on Australia’s Oil Import 

Even though Australia generates just 10% of its oil requirements, it imports the other 90% from various nations. China, Japan, Malaysia, Singapore, Africa, and the Middle East are nations on this list. Because Russia is the world’s second-biggest oil producer after Saudi Arabia, the new economic sanctions on Russia’s oil export will significantly increase global oil demand. Additionally, other countries will exert pressure on the remaining oil-producing countries to raise their output. This might result in a considerable increase in the cost of goods.

The increase in oil price would significantly impact the Australian economy since the country imports 90 percent of its oil requirements from other nations. This will have a significant impact on the currency’s exchange rate.

Inflation and Oil Prices rise in Australia

Economic sanctions on Russia are expected, and as a result, Russia will be unable to sell its oil, even though it supplies 5% of global oil demand. As a consequence, oil prices will increase across the world. In Australia, it is projected that petrol prices may rise to as high as $2.14 per litre.

Because Australia is reliant on oil imports, the price of gasoline has already increased for the people of this country. However, the current tensions between Russia and Ukraine have contributed to increased gasoline prices.

In a similar vein, the present scenario has contributed to an increase in inflation. The price of oil has a significant influence on pricing across all industries. In a nutshell, when oil prices rise, every industry is affected, increasing the inflation rate.

Major ASX- Listed Oil Stocks on the Rise

The primary two oil-producing companies in Australia are Woodside Petroleum Limited (ASX: WPL) and Santos Ltd (ASX: STO).

Woodside Petroleum Limited (ASX: WPL) is currently trading at $27.95 and has gained more than 13% in the last 30 days. In fiscal 2021, the company saw a significant increase in its revenue. WPL’s revenue increased by more than 93% to reach 6.96 billion USD in fiscal 2021. Its net income was 1.98 billion USD, or 149% more than the net income in 2020. Its diluted EPS was $2.04, or a gain of 148% compared to fiscal 2020.

Similarly, Santos Ltd (ASX: STO) trades for $7.15 and has gained more than 2.7% in the last 30 days. STO’s revenue increased by more than 39% to reach 4.71 billion USD in fiscal 2021. Its net income was 658 million USD, or 284% more than the net income in 2020. Its diluted EPS was $0.31, or a gain of 282% compared to fiscal 2020.

There are also other ASX-listed stocks that could see a surge that uses petroleum products somehow. These stocks include Origin Energy Ltd (ASX: ORG) and Ampol Ltd. (ASX: ALD). These stocks may see an increase amid a going situation. Any company directly related to oil in its supply chain could see a significant effect on its stock.

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