The Australian market has dropped more than 1.5%.
Energy stocks are getting smashed after OPEC oil producers decided against cutting production, which is expected to keep prices low. Crude oil broke through $US70 in trade overnight, for the first time since 2010.
Ric Spooner, Chief Market Analyst at CMC Markets, says investors are pricing in the possibility of sustained weakness in the oil price and a scenario in which excess supply capacity might persist for the next year or two.
“While today’s large drop in both oil prices and energy stocks might turn out to have been amplified by Thanksgiving holiday in the US and thin volumes, it does seem likely that OPEC’s decision creates the potential for a lower range of oil prices for some time to come,” he says.
He says today’s OPEC decision means that new oil projects will be difficult to justify and finance for some time.
There is also likely to be a decline in exploration activity.
Santos has lost almost 10% to be trading at $10.50, Sundance Energy more than 15% to $0.695, Oil Search more than 8% to $7.77, Origin Energy 5% to $12.51, Woodside Petroleum more than 3% to $37.20 and Horizon Oil weaker by more than 6% to $0.21.
A falling oil price has an upside in cheaper fuel, a major cost for airline Qantas whose shares jumped 3% to $1.85. Qantas is up 6% this week.
The major banks were all weaker, led by Westpac which lost 0.87% to $32.94.
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