Sasol's 30% Slide: Caution or Buying Opportunity?

Sasol is one of South Africa's notable players in the oil market, particularly among retail investors on the EasyEquities platform. Closely tied to global oil prices, Sasol’s share price often moves in step with energy market trends. This year, the stock has declined by over 30% year to date and is now trading in the R59 to R60 range. In 2020, during the Covid-19 lockdowns, global demand collapsed, oil prices plummeted, and Sasol’s share price fell below R30 per share.

Now, oil markets are once again under pressure. On April 10, oil prices dropped by 3% due to escalating U.S.-China trade tensions, a rise in U.S. crude inventories, and an unexpected outage at the Keystone pipeline. Global stocks also fell on the same day, with investor sentiment shaken by mounting concerns over global demand and economic growth. Analysts are warning of further declines in oil prices as the outlook for the global economy darkens.

Earlier signs of optimism - such as a 90-day pause on most “reciprocal” tariffs by former U.S. President Donald Trump (excluding those on China) - briefly reassured investors and sparked a rally on Wall Street. Oil markets initially responded with sharp gains: U.S. crude jumped 4.65% to $62.35 a barrel, while Brent rose 4.23% to $65.48. However, that recovery proved short-lived as deeper market fundamentals remained unresolved.

Despite these brief rallies, oil prices continue to face headwinds. Elevated tariffs on Chinese goods, including a 125% rate on key imports, have rattled markets and contributed to fears of slowing growth in both China and the U.S. - the world’s two largest economies. For Sasol, a company heavily reliant on oil price movements, this uncertainty presents significant risks to its financial performance and investor sentiment.

Adding to the pressure is the ongoing strain on the U.S. shale industry. While markets temporarily stabilized on tariff-related news, U.S. benchmark oil prices have dipped below the breakeven point for many shale producers - jeopardizing the profitability of new drilling projects and casting doubt on the sustainability of production levels.

The Role of U.S. Shale in the Global Oil Market

The rise of U.S. shale production, driven by advances in fracking and horizontal drilling, has reshaped the global energy landscape. The U.S. has emerged as one of the worlds top crude oil producers, transitioning from a major importer to a leading exporter. This shift disrupted traditional trade flows and challenged OPEC’s long-held dominance in the market.

However, with OPEC+ expected to increase production in May and economic uncertainties mounting, the outlook for oil remains fragile. Analysts caution that the current market conditions could begin to resemble the Covid-era downturn, where oversupply and collapsing demand sent prices into freefall. This scenario poses challenges not only for U.S. energy companies but also for oil-sensitive stocks like Sasol.

Conclusion

In times of heightened uncertainty, it’s important for investors to remember that market cycles - however volatile - are a normal part of the investment journey. Oil prices, geopolitical developments, and economic shifts will continue to influence short-term market movements, but long-term fundamentals for many companies may remain intact.

As the U.S. shale revolution continues to evolve and energy markets remain unsettled, adhering to sound investment principles becomes even more crucial. A diversified portfolio and a disciplined strategy could help investors weather the storm.

“There really are no new pearls of wisdom during times like these,” says EasyEquities’ Chief Marketing Officer, Carel Nolte. “However, there is one big message that remains consistent: stick to the basic behaviours of good investing.” Staying calm, focusing on long-term goals, and viewing volatility as a potential opportunity rather than a threat can help investors navigate the turbulence - and emerge stronger on the other side.