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Woodside (ASX:WPL) share price still at 16-year lows. Time to buy?

Sebastian Bowen | October 23, 2020 10:27am | More on: WPL

oil can falling over and spilling coins signifying fall in woodside share priceImage source: Getty Images

The Woodside Petroleum Ltd (ASX: WPL) share price is not a very happy camper right now. At opening trade today, Woodside shares are going for just $18.47 at the time of writing. That’s a rather striking level for one of the ASX’s largest pure oil and gas plays.

Just take a look at the graph below, and you’ll see what I mean:

WPL share price

Woodside 10-year share price data | Source: ********.au

Yep, and that’s just over the past decade.

You have to go all the way back to 2004 – the year George W. Bush was re-elected US president and Shrek 2 was released – to see the last time Woodside shares traded this low. It goes without saying that 2020 hasn’t been a pretty year for Woodside. The share started the year at $34.47 and climbed as high as $36.38 in January. But then the coronavirus pandemic came, and Woodside shares were smashed. The Woodside share price fell more than 54% between 21 February and 23 March, bottoming out at just $14.93.

So, given this dramatic fall from grace, are Woodside shares in the bargain bin today? Or is this company a falling knife we should steer clear of?

Why are Woodside shares at a 16-year low?

As I mentioned earlier, prior to 2020 we hadn’t seen Woodside shares at these levels since 2004. So what has caused this dramatic fall? In my opinion, we can put it down purely to the coronavirus pandemic. Crude oil is a highly cyclical commodity at the best of times. Because oil is an input into many different industries (transport, plastics, chemicals etc), the world uses more oil in times when the economy is booming. But conversely, oil is also far less in demand when the economic weather turns sour. And the world is now in the midst of one of the worst global recessions in living memory.

Almost overnight, international travel was halted. On top of that, with lockdowns, shutdowns, and working from home, there was suddenly far fewer people driving. Put all that together and we have a massive demand shock to the oil price. As a result, oil cratered from around US$55 a barrel back in February to negative pricing in April (for the first time in history).

Since Woodside is purely in the business of drilling and selling oil, these developments have been calamitous.

Is this a good time to buy Woodside?

When it comes to commodity/resources shares, my philosophy has always been to buy at low points of a commodity cycle. And right now, I still think oil is cheap by historical standards (albeit not at the levels we saw in March and April). As such, I think, if you are comfortable and willing to own an oil stock in your portfolio, now is probably a good time to pounce on Woodside. The world is still very much reliant on oil, and I fully expect the oil price to substantially recover in line with the global economy over the next year or 2. Thus, today’s Woodside share price could well prove to be a great place to open a position.