Should You Buy Beach Energy Limited at this Share Price Today?

What Happened to the Beach Energy Limited Share Price?

Beach Energy Limited [ASX:BPT] gained 1.70% by 1:30pm today. The stock was trading at AU$1.05 a share. Heavy selling on Wall Street overnight prompted the Australian market to do the same today. The market dived with selling focussed on bank shares. However, by early afternoon, the market was making a comeback.

Why Did This Happen to BPT Shares?

Oil and gas is now an attractive target for M&A activities. The sector is also showing an attractive value for retail investors. Is it time to buy companies such as Beach Energy or Drillsearch Energy?
It all depends on where the oil price is going next. With the range of forecasts out there, investors are probably scratching their heads, wondering what to believe. At this point, timing is probably not as important as fundamentals. The fundamentals are saying that the oil price is too low and should be somewhere close to US$70.
However, this forecast is by no means definitive. It can be skewed by many things, such as increasing supply, weaker demand or supply shock. One of the most cited factors to influence oil and commodities is the US dollar.
Analysts often talk about a negative correlation between the US dollar and the oil price. Market participants talk about this relationship as if it were a physical law ‘carved into stone’. Of course, this makes the forecast for oil more complicated. It also makes investors even more confused.

What Now for BPT?

The truth is the US dollar oil relationship does exist. Although the relationship is not a perfect one, it is a valid factor to take into account when thinking about oil. There are two points to this relationship. One is the nature of the relationship and the other is how investors can use this relationship to make their investment decisions.
Most research shows that oil influences the USD, not the other way around. This causality would mean investors should focus on the fundamentals of oil to start with. However, they cannot completely discount the movements of the US dollar.
With a higher US dollar, oil is going to be lower or at least be under downward pressure. The problem with looking at the US dollar is that the US dollar is very hard to forecast, thus making it unreliable for predicting the oil price. Investors should continue to focus on the medium term fundamentals of oil.

Ken Wangdong
Emerging Market Analyst, New Frontier Investor

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One response to “Should You Buy Beach Energy Limited at this Share Price Today?

  1. The oil prices could skyrocket if the United States follows through with its plan to sell arms to both Iran and Saudi Arabia. As usual once America’s energy source is secured by internal production, then it does not mind to kill the cheap supply and choke its global competitors. The best way is to start another middle east war between Iran and Saudi this go around.

    However, the biggest miscalculation could be Russia, Brazil and Venezuela meeting China’s needs. That means only Japan and Europe will suffer thus further weakening the western alliance against BRICS.

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