Woodside's plunge carries risk of recession

WOODSIDE is one of Australia's premier energy companies, owning massive offshore resources in oil and gas. It pioneered Western Australia's North-West Shelf project and is now, somewhat controversially, planning a $35 billion Kimberley gas project, with a processing hub at James Price Point north of Broome.

By InvestSMART · 9 Aug 2011

By InvestSMART ·
9 Aug 2011

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Despite recent high oil prices and the existence of massive long-term export gas contracts with China and elsewhere, Woodside's share price has experienced some dramatic fluctuations, as demonstrated by the attached chart produced by Paul Ash, Victorian president of the Australian Technical Analysts Association.

In May 2008 it reached a high of $69.92. Six months later, it plunged to $26.59, the low line on the chart. (The chart does not fall quite to this level as it is a weekly chart and the low point was inter-week.) About a year on it climbed back to $53.87 about 62 per cent of the previous high using $26.59 as the bottom of its range.

Since early 2010 Woodside has been range-trading between $40.30 and $48.50. The top level of that range (the top parallel line on the chart) represents about the 50 per cent point of the chart's overall high and low.

In mid-July this year Woodside broke out of this trading range to the downside and it settled on Friday, July 29, at $39.65. By last Friday it had fallen to $34.55. This breakout to the low side, Ash says, "indicates a weak future for Woodside's price going forward".

The breakout, he says, was not entirely unexpected because the price has been trading in the low half of its range for much of 2010 and into 2011 despite the oil price gradually rising since early 2009. In the early part of this year Woodside's price rose towards the top of its range

But early in May crude oil fell in price by about $US18 a barrel and Woodside's price dropped from the upper band of the range through the lower support line.

In such falls it is not uncommon for stocks to bounce and retest that support level ($40.30). But Ash says this seems unlikely. There is a downtrend in place confirmed by the 30-week moving average (red line) turning down and the share price falling well down through that 30-week moving-average line.

Now he sees a possible downside target of just under $27, about the level of the November 2008 low on the chart. "This level is very important because, if the price can't find support here, the future of the energy stocks is not good and we could be facing a commodity recession," he says.

This column does not constitute investment advice. Those wanting to enter the market should seek professional counsel and do some homework.

rodmyr@ozemail.com.au

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Frequently Asked Questions about this Article…

What is Woodside and why does it matter to investors?

Woodside is one of Australia’s premier energy companies, known for large offshore oil and gas projects including the pioneering North‑West Shelf. It’s planning a controversial $35 billion Kimberley gas project with a processing hub at James Price Point, so its project decisions and commodity exposure are important to everyday investors watching energy stocks.

Why has the Woodside share price been so volatile?

The article highlights big swings: a May 2008 high of $69.92, an inter‑week low around $26.59 six months later, a recovery to $53.87 about a year after that, and more recent range trading and a mid‑July breakout to the downside. Factors mentioned include changes in the oil price and technical trading dynamics that have driven volatility.

How did changes in the crude oil price affect Woodside stock?

According to the article, an early‑May drop in crude oil of about US$18 a barrel pushed Woodside’s price from the upper band of its trading range down through the lower support line. This shows Woodside’s sensitivity to movements in global oil prices.

What are the key technical levels for Woodside stock that everyday investors should know?

The article identifies a trading range between roughly $40.30 (support) and $48.50 (resistance) since early 2010. After a mid‑July breakdown, the share settled at $39.65 (July 29) and later fell to $34.55. A downside target just under $27—near the November 2008 low—is highlighted as a critical support level.

What technical indicators suggest a weak outlook for Woodside stock?

Paul Ash, Victorian president of the Australian Technical Analysts Association, points to a confirmed downtrend with the 30‑week moving average turning down and the share price falling well below that moving average. He treats the mid‑July breakout below the trading range as a bearish signal.

What would a fall below about $27 mean for Woodside and energy stocks?

The article states that if Woodside can’t find support around the just‑under‑$27 level (the November 2008 low), the future for energy stocks looks poor and we could be facing a broader commodity recession, according to the technical analyst quoted.

How does Woodside’s long‑term gas contracting affect investor outlook?

The article notes Woodside has massive long‑term export gas contracts with China and elsewhere and that oil prices have been relatively high at times. While these contracts and high commodity prices can support fundamentals, they haven’t prevented the price volatility and recent technical weakness discussed.

What should everyday investors do if they’re considering Woodside stock?

The column is not investment advice. The article recommends that prospective investors seek professional counsel and do their homework before entering the market, given the technical risks and project controversies highlighted.