ASX energy shares are have started the trading day on a positive footing as the oil price steadies at a more than two-year high.
The crude price jumped on Friday on a bullish report from the International Energy Agency (IEA), reported Reuters.
The Brent oil price benchmark rallied to over US$73 a barrel and is up by over around 85% from a year ago when COVID-19 devastated the market.
Despite this bullish backdrop, ASX energy shares aren't shooting the lights out.
Muted ASX energy shares despite high oil price
The Woodside Petroleum Limited (ASX: WPL) share price increased by 0.7% to $23.78, Oil Search Ltd (ASX: OSH) share price added 0.5% to $4.12 and the Santos Ltd (ASX: STO) share price gained 0.4% to $7.70 in early trade.
In contrast, the S&P/ASX 200 Index (Index:^AXJO) improved by 0.7%. The lacklustre performance of the sector may be due to two countervailing factors.
Firstly, US shale oil production is on the increase thanks to higher commodity prices.
Supply increase counters bullish outlook
Unconventional oil output from the US crumbled along with the oil price in 2020. It is more expensive to produce oil from shale and most US producers could not do this profitably with the oil price under US$50 a barrel.
But with the commodity price hovering over US$70 a barrel, that's a totally different matter.
The US Energy Information Administration is predicting that shale production will rise by around 38,000 bpd in July to 7.8 million bpd, according to Reuters.
Shale accounts for more than two-thirds of total US production.
COVID still haunting oil markets
What's more and the UK and Victoria reminds us that economies can open and shut quickly. UK Prime Minister Boris Johnson just delayed plans to lift most of the country's COVID restrictions by a month.
This is to combat the rise of the more infectious and deadly Delta strain of the virus. Ongoing restrictions dampen demand for oil.
These factors have taken some wind out of the ASX energy's sails this morning. But investors should still be pleased that demand for oil is rebounding strongly.
Oil price rise supports ASX energy shares
The IEA said last week that it is expecting global oil demand to recover to pre-COVID levels by end of 2022. This is faster than originally forecast.
Vehicle usage and the return of the dreaded peak hour traffic-jams are a testament to how quickly things are bouncing back. Air travel is also on an upward, although patchy, path to recovery.
Seasonal supply off-line
The seasonal refinery maintenance shutdowns in Canada and the North Sea are also supporting oil prices.
Rystad Energy estimates about 330,000 barrels of oil a day (bpd) of oil and condensate supply is offline at Canada oil sands projects, along with another 370,000 bpd offline in the North Sea.
The tug-of-war between bulls and bears will only add to the volatility in ASX energy share prices. The silver-lining is that the stagnation or easing in the oil price will take some of the edge off inflation worries.
