The S&P/ASX 200 Index (ASX: XJO) is having a fairly subdued start to the trading week this week. The ASX 200 has closed pretty much flat today, down 0.01% to 7,307 points.
One sector that didn't really branch out for the index's performance is ASX energy. That's despite a big development in the crude oil price today.
According to a report in the Australian Financial Review (AFR) today, crude oil is sitting at a 3-year high. The two crude benchmarks relevant to ASX energy shares are both at their highest levels since October 2018 today.
Brent crude is sitting comfortably at US$76.18 a barrel at the time of writing. Meanwhile, West Texas Intermediate (WTI) crude is at US$74.05 a barrel.
According to the report, it is a rebounding demand for global travel that is pushing crude higher. A guessing game over what the market-setting Organisation of Petroleum Exporting Counties (OPEC) will do next is also fuelling demand. Daniel Hynes, the senior commodity strategist at ANZ, told the AFR the following:
So far [OPEC] has been able to negate the impact of travel restrictions on demand by coordinating a supply response that has kept the market from being flooded with excess cargo… It has reached a point, however, where its cautious approach could ultimately hurt the market…
The market is looking extremely tight over the next couple of quarters… We expect [OPEC+] will try to balance the market's need for more supply against the fragile nature of the recovery in demand.
So with crude prices at a 3-year high, how are ASX energy shares faring today?
Black gold no longer for ASX energy shares?
Well, not that well, as we touched on earlier. The ASX's largest oil company, Woodside Petroleum Ltd (ASX: WPL) was flat today at $22.53 a share. Although Woodside has recovered substantially (up 40% or so) from the lows we saw last year, it still remains more than 30% lower than the pricing we were seeing just prior to the onset of COVID-19 last year.
It's a remarkably similar story with the ASX's other pure oil shares such as Oil Search Ltd (ASX: OSH) and Santos Ltd (ASX: STO).
Why? Well, Hynes reckons it could be the level of risk that investors are seeing with the current oil market. Noting that crude oil consumption remains well below pre-pandemic levels, and 8% below 2019 levels, Hynes reckons that the fact that international borders remain all but closed is at play here:
[Oil demand could] struggle to rise further if the new delta variant of the coronavirus takes hold in major regions and forces officials to hold onto some restrictions.
Hynes is also looking to the potential of Iranian oil re-entering the global market following a potential loosening of sanctions. It looks like it will be yet another interesting year for oil in 2021.
