Santos Ltd (ASX: STO) shares are in the spotlight on Tuesday after the price of oil fell further overnight.
According to Trading Economics data, crude oil prices have fallen around 7.5% so far on Tuesday morning to around US$96 per barrel, which is the lowest price in three weeks, amid renewed hopes for a resolution of conflict in the Middle East. The decline also follows a 3% tumble of oil prices on Monday.
Trading Economics said:
"President Trump said Monday that Iran wants to "make a deal and that could happen". Early in the day, Iran's supreme leader approved the government's pursuit of talks aimed at ending the months-long conflict that has disrupted Middle East energy supplies, according to Iran's state-run IRNA agency."
"This followed reports that President Trump also wanted to give diplomacy more time before considering renewed military action, telling Israeli Prime Minister Benjamin Netanyahu that he preferred negotiations.
"US Secretary of State Marco Rubio reiterated that Trump favoured a peaceful resolution, while Iranian officials signalled that an agreement remained possible following two days of Qatar-mediated discussions, provided commitments were implemented in practice."
What does a lower oil price mean for Santos shares?
Santos is a pure-play ASX energy producer heavily focused on oil and gas supply and production.
That means its share price is heavily influenced by shifts in global oil prices.
Santos shares rocketed higher this year so far following ongoing geopolitical tensions in the Middle East. Conflict in the region has threatened global oil supply distribution, which has kept oil prices high. This has directly lifted the company's revenue and profit margin.
Likewise, an oil price decline does the opposite.
What's the latest out of Santos shares?
Santos shares have fallen around 4% in early-morning trade on Tuesday. At the time of writing the energy shares are changing hands at a three-week low of $8.78 apiece. The oil shares also closed around 1.5% lower on Monday.
But thanks to a huge rally earlier this year, Santos shares are still around 42% higher for the year-to-date, and they're also 37% higher than 12 months ago, at the time of writing on Tuesday morning.
Are the energy shares still a buy?
It looks like the experts are still bullish about the outlook for Santos shares going forward.
TradingView data shows the majority of analysts (13 out of 17) have a buy/strong buy rating on the shares. After the share price decline this week, the $9.31 average target price implies around a 6% upside ahead, at the time of writing. However, more optimistic forecasts suggest the shares could rebound around 21% to a maximum price target of $10.59 over the next 12 months.
The data is similar on Market Index. Again, the majority (3 out of 4) have a strong buy rating on Santos shares. The average $9.16 target price implies an upside of around 4% at the time of writing.
My takeaway
While talks about conflict resolution in the Middle East are back on the table, there isn't anything concrete in place.
Much like in July this year, when the oil prices cooled off the back of news that the US and Iran could soon reach a peace agreement, strikes quickly resumed and threw the volatile market back into chaos.
With no clear visibility about whether we'll see an abrupt end to the war anytime soon, I still expect we could see some more upwards pressure on oil prices again soon.
At the current $8.78 trading price, I think the shares are a buy with potential near-term upside ahead.
The post Are Santos shares still a buy after latest oil price crash? appeared first on The Motley Fool Australia.
Motley Fool contributor Samantha Menzies has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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