ASX oil and gas stocks are underperforming the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index this morning after the International Energy Agency (IEA) cut its oil forecast due to the trade-war induced global economic slowdown.
The energy sector is struggling to climb into the black as falls in the Woodside Petroleum Limited (ASX: WPL) share price and Santos Ltd (ASX: STO) share price more than offset gains in Oil Search Limited (ASX: OSH) and Beach Energy Ltd (ASX: BPT).
Woodside's share price is also under pressure as brokers downgraded their earnings estimates for the energy giant following its disappointing quarterly update, while news that the IEA has lowered its oil demand forecast in 2019 to 1.1 million barrels per day (bpd) is also overshadowing the sector.
More downgrades possible
The global agency had predicted 2019 demand of 1.5 million bpd last year before dropping this to 1.2 million bpd last month, according to Reuters.
What's worse, the IEA stands ready to downgrade its forecasts again due to cracks in the Chinese economy and surging oil supply from the US.
China reported its slowest quarterly GDP growth rate in 27 years this week while export dependent Singapore tumbled into a recession due to the trade war between China and the US.
A slowdown in economic activity means less demand for oil and the increase in US oil exports is casting a further gloom over the industry.
US oil output was expected to grow by 1.8 million bpd in 2019, said IEA's executive director Fatih Birol. While that's lower than the 2.2 million bpd recorded in 2018, the slowdown in demand will more than offset this positive.
Near-term catalyst for oil stocks?
However, growing tensions in the Strait of Hormuz could give the oil price a boost. US President Donald Trump said that the Navy shot down an Iranian drone approaching the USS Boxer.
Iran recently shot down a US drone and is harassing oil tankers sailing through the narrow strait with the regime warning that it can shut down shipping through that channel if it wanted to.
The US and Britain have warships patrolling the area and the risk of a military conflict is here. Around one third of world's seaborne crude and fuels sailed through the Strait of Hormuz last year.
The dynamic situation makes it hard to forecast oil prices and that means investors buying ASX oil and gas stocks will need to be prepared for a volatile ride.
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