Santos Shares Hit Decades High, As Rally Continues

Santos shares (ASX: STO) cracked the A$9 ceiling, hitting the highest level in more than a decade at A$9.10. The STO share price will start today’s session at A$9.03, up 46.83% YTD, with 25.24% coming since the start of calendar H2. That’s quite enough numbers for now, let’s take a look at what is driving the stock.

The rally follows a macro bid for oil exposure and growing confidence that Santos is approaching its long-awaited cash flow inflection. With Brent at $106 and WTI above US$95 a barrel amid renewed Middle East tensions, markets have been reaching for geared energy names, and Santos offers plenty of operational leverage to both crude and LNG.

What distinguishes this leg of the rally from a simple oil-price trade is the project story now coming into view. Pikka Phase 1 in Alaska began continuous production in June, with seawater injection established at the Nanushuk Drillsite-B and output ramping toward plateau rates of around 80,000 barrels a day targeted around the end of the third quarter.

Barossa LNG is running close to full rates in commissioning, positioning it to backfill Darwin LNG, lift LNG sales volumes and spread fixed costs across larger output. Second-half production could land 20% to 30% above the first half, giving markets an earnings and cash flow story to rally around.

The Setup From Here

The Street remains bullish on the stock as far as price targets, but the bulk of the upside looks to be in the stock at these levels. The average price target at A$9.45 is only about 4% above the current share price, although both Citi and UBS have flagged Santos as a preferred Australian energy exposure, citing operational leverage to crude and LNG and what they view as conservative oil price assumptions embedded in the valuation.

Forward estimates suggest the price-to-earnings multiple could compress to roughly 10.5 to 12 times FY26-27 earnings as Pikka, Barossa and Papua LNG ramp, broadly in line with or slightly cheaper than Woodside on valuation.

The technical setup supports the bullish case, without being overstretches. The price sits above the 50-day moving average of A$8.38, which itself stands above the 200-day average of A$7.64, whilst at A$9.03 the stock has pushed beyond the upper Bollinger Band of A$8.84, with band width around 5.7% and widening and 20-day volatility up by roughly half from its prior reading. Backed by an RSI at 68.6, and this fits an overextended but orderly breakout rather than a blow-off.

Plenty priced in, yet markets do not appear to be done with Santos just yet. We would keep an eye on any indication of pullbacks to test support, as at decades’ highs, swings can be violent if the thesis is challenged.