ASX oil shares have not been having a great time of late. Although companies like Woodside Petroleum Ltd (ASX: WPL) have recovered strongly from the lows of last year, this recovery has stalled in recent months.
Woodside shares rose from a low under $16 a share last year to as high as $27.60 by the start of 2021. A recovery in crude oil prices from the negative levels they reached last year to back above US$60 a barrel largely assisted this rise.
But as of today, Woodside has sunk more than 16% from January's highs and is trading for $22.40 a share at the time of writing. We see a similar pricing pattern across other ASX oil shares like Santos Ltd (ASX: STO), Oil Search Ltd (ASX: OSH) and Beach Energy Ltd (ASX: BPT).
None of these companies shave even come close to reaching their pre-COVID pricing heights. And that task might become even harder from here, at least in the short to medium term.
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ASX oil shares: black gold or red ink?
According to a report from the Australian Financial Review (AFR) today, the global oil market might be awash with new crude oil supplies very soon. The AFR reports that a major oil exporter in Iran looks set to rejoin the global crude oil market.
Iran has been under severe economic sanctions for a while now, ever since former US President Donald Trump tore up the Iran nuclear deal in 2018, and reimposed heavy sanctions on the Iranian economy. These sanctions prevented Iran from exporting crude oil into the global economy, at least on the scale the oil-rich Middle-Eastern country is capable of.
The Iranian government and the Biden administration are reportedly negotiating an agreement that will curb Iran's nuclear capabilities in a vein similar to the defunct 2015 agreement that Trump tore up. Such an agreement would pave the way for Iran to once again join the global oil market.
If this does happen, it could result in a major wave of fresh oil supply in the global economy. And, as classical economics tells us, more supply usually translates into lower prices.
That's the last thing that Woodside, Oil Seach, Beach and the other ASX oil shares probably want to hear right now. So it's no wonder why the Woodside share price is down 2.57% today (at the time of writing). Oil Search has fared even worse, down 4.05%. Iran's gains are these companies' losses today, it seems.
