John Dagge, 13 January 2016
A SLIDE in the price of oil below $US30 ($A43) a barrel has not stopped the Australian sharemarket from closing in positive territory for the first time for the year.
The ongoing oil price rout has also generated a call from a leading investment bank for battered energy players Origin Energy and Santos to merge.
The ASX 200 snapped an eight-day losing streak yesterday – its equal longest since mid-2010 – to close 1.3 per cent higher at 4987 points.
The fightback came as investors shrugged off the latest slump in the oil price and focused on better than expected trade data out of China.
The price of a barrel of West Texas Intermediate, a key global oil benchmark, briefly dipped below $US30 a barrel early yesterday morning for the first time in 12 years.
It regained lost ground throughout yesterday, marking its first daily rise for 2016.
The oil price has lost 17 per cent this year and 70 per cent over the past 18 months as key producers such as Saudi Arabia maintain high output despite the economies of major consumers such as China slowing.
Standard Chartered has warned oil could hit $US10 a barrel. The slide has put oil and gas companies under tremendous pressure, with British oil giant BP announcing on Tuesday it would slash 4000 jobs.
A BP Australia spokeswoman declined to say how many would be cut from Australia, saying the oil major was not providing regional figures.
The share prices of Origin and Santos have been crunched and both were forced to hit investors up for extra cash last year to shore up their balance sheets.
Credit Suisse says a nil-premium merger between the pair would generate $3 billion in savings. Origin and Santos have invested billions in developing separate liquid natural gas projects and processing plants in Queensland.
Credit Suisse analyst Mark Samter said a tie-up would allow a new $12.8 billion energy player to mothball one of the four processing plants it would own.
Mr Samter said a merger would also free up gas for the local east coast market, ending concern about a looming shortage. Origin would spin off its electricity utility business under the proposal.
“We are struck by the beauty of both the industrial and political logic to the deal at a time when the companies are on their knees,” Mr Samter said in a note to clients.
A Santos spokesman told Business Daily the company was “in a good position to navigate a period of low oil prices following the actions we took last year to strengthen our balance sheet”.
Origin declined to comment on the proposal. Shares in Origin closed 3.2 per cent higher at $4.18 while Santos added 5.4 per cent to $3.11.
Extracted in full from the Courier Mail.