The market is poised to open weaker this morning but ASX oil stocks are likely to come under even more pressure.
Futures pricing is tipping a 1% drop in the S&P/ASX 200 Index (Index:^AXJO) on Wednesday on a poor overnight lead from Wall Street.
The 3.3% thumping in the Brent crude price to a two-week low of US$41.03 a barrel will add to the pain for oil-exposed stocks.
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ASX oil stock prices on slippery slope
These include the Woodside Petroleum Limited (ASX: WPL) share price, Santos Ltd (ASX: STO) share price, Oil Search Limited (ASX: OSH) share price and Origin Energy Ltd (ASX: ORG) share price – just to name a few.
The oil price is testing the psychologically important 100-day moving average, according to Bloomberg. A break below that could pave the way for the commodity to slip even lower in the near-term.
Short-term pressure on the oil price
The weakness comes as a resurgent wave of new COVID-19 cases dominate headlines. The official global number of deaths from the pandemic exceeds one million and New York is looking like the latest hotspot.
The reintroduction of social restrictions will curtail movement and that means weak oil demand, and this isn't the only short-term challenge the market's facing.
There are reports that Russia is likely to pump more than the agreed quota it promised OPEC. Members of the oil cartel will be under pressure to lift supply too to make up for the huge revenue shortfall.
ASX energy stocks are in for a rough ride.
Little good news for medium to long-term outlook
Compounding the near-term gloom are downbeat medium-term forecasts for oil. Three of the world's largest independent oil traders warn that consumption won't recover in any meaningful way for at least 18 months, reported Bloomberg.
The dour predictions coincide with modelling that shows the peak in demand for oil is only ten or less years away.
Total SE predicted that the demand peak will come around 2030. Mubadala Investment Company, one of the largest state wealth funds of the United Arab Emirates (UAE), echoed the same conclusion.
Meanwhile, Pierre Andurand, chief investment officer and founder of Andurand Capital Management LLP, believes demand growth will come to an end in 2026.
Decarbonising your investment strategy
The silver lining is that ASX energy stocks are far more exposed to gas than to oil. While gas prices are linked to crude, the energy source is seen as a little more enduring.
This is particularly so as the Morrison government is using gas as a stopgap measure in its transition roadmap towards a greener future.
If you haven't already started thinking about decarbonising your investment portfolio, you really should.
