Which Energy Stocks will Benefit from the Continuation of Fracking?

The recent U.S. political debate saw both candidates firmly backing the continuation of fracking, a controversial method of fossil fuel extraction. This show of support despite the global shift to clean energy signals renewed confidence in traditional energy, raising the question: could this be the turning point Australia’s largest gas companies have been waiting for?

Before diving into the opportunities, it’s important to understand the relationship between the US and Australian energy sectors. Historically, they’ve been closely correlated, but that connection began to break in 2020.

Energy sector well below its all-time high

Since then, the US energy sector has reached new all-time highs, while Australia’s energy sector remains nearly 60 per cent below its all-time high. However, with the US reaffirming its commitment to fossil fuels, and Australia's tendency to follow the lead of its ‘big brother’, opportunities may be emerging for Australia’s largest energy players. Let’s take a closer look at three oil and gas companies worth watching.

Woodside Energy (WDS)

As Australia’s largest independent oil and gas producer, Woodside is well-positioned to benefit from growing demand. The stock has dropped more than 40 per cent since November 2022, creating an intriguing opportunity for a potential rebound. Keep an eye on the $19 to $22 range, given this level has provided strong support back in 2020 and 2021.

Santos (STO)

With a global diversified portfolio, including activity in the US, the renewed confidence in fossil fuels bodes well for the future of this company. Though the stock has been relatively flat post-COVID, it’s currently trading at a 60 per cent discount to its all-time high. A move above $8 would be a strong signal for further upside, and a rise past $9 could push the stock toward $13 in the medium to long term.

Viva Energy (VEA)

As one of Australia’s largest downstream energy companies, the recent support for fracking could not have come at a better time. The stock has fallen around 30 per cent since April this year and is currently trading around $2.70. What's exciting is that this level has provided huge support since 2022, so watch closely as a tick back upward could see the stock resume the long-term uptrend and reach $3.80 in the near term.

So, as the 2024 US election unfolds and political uncertainty fades, ASX-listed oil and gas stocks could follow the historical pattern of rallying, positioning these companies for significant gains in the coming months.

What were the best and worst-performing sectors last week?

The best-performing sectors included Materials, up 4.17 per cent followed by Real Estate, up 4.04 per cent and Energy, up 1.86 per cent. The worst-performing sectors included Financials, down 0.79 per cent, followed by Communication Services, down 0.16 per cent and Health Care, up 0.10 per cent.

The best performing stocks in the ASX top 100 included Mineral Resources, up 25.06 per cent, followed by Pilbara Minerals, up 20.33 per cent and Paladin Energy, up 12.48 per cent. The worst-performing stocks included Steadfast Group, down 10.71 per cent, followed by NIB Holdings, down 2.83 per cent, and REA Group, down 2.42 per cent.

What's next for the Australian stock market?

With the All Ordinaries Index up over one per cent last week, buyers have re-established their dominance and a notable trend has emerged. Since mid-August, the All Ords has pulled back to the previous all-time high of 8,168 points, set in early April, on three separate occasions, with buyer activity increasing each time.

The first pullback to 8,168 points came in the week ending August 23, when buyers pushed the market up by over half a per cent. The index revisited the 8,168-point level on the week ending 6 September, with buyers once again stepping in, closing the week nearly one per cent higher. After briefly touching 8,168 last week, buyers drove the All Ords up by more than one and a half per cent.

It's evident that buyers are becoming more aggressive, and the 8,168-point level has now become a key support zone. This points to one likely scenario being a push to new all-time highs, which may surprise some as September is traditionally the most bearish month of the year. Consider what this unexpected resilience suggests: if the market is moving up during its weakest month, what does that tell us about current sentiment? And how could you adjust your strategy?

For me, the answer is simple. Now is not the time for caution. It’s time to be proactive—seeking opportunities and positioning yourself to benefit from the bullish momentum. Sitting on the sidelines could mean missing optimal entry points, forcing you to chase the market and make suboptimal trading decisions.

For now, good luck and good trading.

Dale Gillham is the Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the bestselling and award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online.