The S&P/ASX 200 Index (Index:^AXJO) is set to tumble this morning but there's a group of ASX stocks that could buck the downtrend.
The Brent crude oil price staged a late turnaround last night after Libya's ceased production from its top oil field, according to Bloomberg.
The Brent price jumped 1% to US$41.18 a barrel after falling below US$40 a barrel earlier in the trading session.
Image source: Getty Images
Why ASX energy stocks can outperform
This could set the Santos Ltd (ASX: STO) share price, Woodside Petroleum Limited (ASX: WPL) share price and Oil Search Limited (ASX: OSH) share price on a positive footing.
If so, the sector will stand in contrast to the expected broad-based weakness on the ASX as US and European share markets fell overnight.
The weakness stems from concerns that risk assets are overbought with investor optimism running ahead of the COVID-19 reality.
What's supporting the oil price
But it isn't only the shutdown of Libya's main oil field that's supporting crude. Demand for gasoline is also rising as some major US cities, such as New Jersey end their lockdowns.
The latest data from the Energy Information Administration showed gasoline consumption increased for a second week, reported Bloomberg.
However, other crude products such as diesel and jet fuel declined with the former down 20% and the latter crashing 80% from this time last year.
Diesel rains on gasoline's parade
No surprises as diesel is tied to industrial production, which is still scraping the floor due to the coronavirus shutdown.
Meanwhile, airlines are still largely grounded and are likely to stay that way for a long while. This is why refineries are switching to producing more diesel.
But some experts believe that low diesel prices will cap any rally in gasoline because refineries cannot limit the production of diesel without negatively impacting on gasoline output.
Oil headwinds aren't abating
Further, the expended supply curbs by Saudi Arabia is expected to end this month, and that means rising inventories of crude is likely to overwhelm any increase in demand from consumers.
The price of crude is also at a level where US shale oil producers can profitably restart pumping again, assuming that oil stabilises around current levels.
The oil market is walking a tightrope and its easy to see how the unstable Libyan regime can send prices swinging wildly.
If ASX energy stocks don't find support when the market opens, it will probably be because the outlook for the market remains too difficult to predict.
