S&P/ASX 200 Index (ASX: XJO) energy shares are facing a significant downturn for the second consecutive day today. While the ASX 200 is up 0.2% in late morning trade, ASX energy shares are not contributing to this modest rise. Here's a closer look at how the big three oil and gas stocks are performing at this time:
- Woodside Energy Group Ltd (ASX: WDS) shares are down 0.9%
- Santos Ltd (ASX: STO) shares are down 0.9%
- Beach Energy Ltd (ASX: BPT) shares are down 1.8%
Investors are hitting the sell button following another overnight retrace in the oil price. Let's explore what's driving this trend.
Why Is the Oil Price Slipping?
The international benchmark Brent crude oil dipped another 0.1% overnight to US$77.47 per barrel. This brings the weekly Brent crude oil price decline to nearly 8%, with the oil price down more than 15% since April 5, when a barrel was fetching US$91.17. Similarly, West Texas Intermediate (WTI) crude oil declined 0.2% overnight to US$73.12 per barrel.
The oil price and ASX 200 energy shares continue to be pressured by the outcomes of the recent Organization of the Petroleum Exporting Countries and its allies (OPEC+) meeting. While OPEC+ agreed to extend its existing production cuts through the coming quarter, the markets were surprised by the announcement that production would start to increase in October, with cuts phased out by June 2025. This change is expected to result in an additional half a million barrels per day by the end of 2024, with production increasing by 1.8 million barrels per day by next June.
In what could be good news for ASX 200 energy shares like Woodside, OPEC has a bullish outlook for global energy demand. The cartel forecasts that this demand growth will keep prices balanced amid the additional supply. However, many analysts are skeptical about these optimistic forecasts.
Headwinds for ASX 200 Energy Shares
Many analysts believe that OPEC's growth forecasts are overly optimistic. This sentiment suggests that the additional supplies coming to market could suppress the oil price and squeeze the profit margins for ASX 200 energy shares.
Robert Rennie, head of commodity and carbon strategy at Westpac Banking Corp (ASX: WBC), highlighted that global inventory is rising, and fuel inventory is surging. With more supply expected to come onstream through the fourth quarter, Rennie forecasts that Brent prices may push back into the US$75 to US$80 range, which contained prices for much of the first quarter this year.
Fundstrat Global technical analyst Mark Newton has an even more bearish outlook, predicting that the oil price could fall further. Newton suggests that WTI crude could revisit last December's lows in the high US$60s, setting this as a minimum downside target. He believes this scenario could make the energy sector a difficult one to overweight in the short run. Traders viewed the lack of an output cut extension through year-end as bearish, contributing to the negative sentiment around ASX 200 energy shares.
Performance of Major ASX 200 Energy Stocks
Woodside Energy Group Ltd (ASX: WDS)
Woodside Energy shares are currently down 0.9%. The company, being a significant player in the ASX 200 energy sector, is directly impacted by the fluctuations in global oil prices and investor sentiment following the recent OPEC+ meeting.
Santos Ltd (ASX: STO)
Santos shares are also down 0.9%. The company faces similar pressures as Woodside, with the declining oil prices and skepticism around OPEC's forecasts impacting its stock performance.
Beach Energy Ltd (ASX: BPT)
Beach Energy shares have taken the hardest hit, down 1.8%. The company's exposure to the global oil market and the recent bearish predictions for oil prices are likely driving this steeper decline.
Long-Term Outlook for ASX 200 Energy Shares
Despite the current headwinds, the cyclical nature of the energy market suggests potential long-term opportunities for investors. The bearish sentiment and lower stock prices could provide attractive entry points for those looking to invest in the ASX 200 energy sector.
Investors should closely monitor the global energy demand and supply dynamics, including OPEC's production decisions and the broader economic outlook. Understanding these factors will be crucial for navigating the market and making informed investment decisions.
The ASX 200 energy shares are under selling pressure due to a combination of declining oil prices, outcomes from the recent OPEC+ meeting, and skeptical analyst forecasts. While the short-term outlook appears challenging, the long-term potential for the energy sector remains intact for strategic investors. Keeping an eye on global energy trends and market dynamics will be key to capitalizing on future opportunities.
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