How new US oil forecasts could impact ASX energy shares

Despite rising oil prices, US shale producers have been slow to expand output.

| More on:
rising asx oil share price buy represented by business man celebrating next to oil barrel erupting with up arrow

Image source: Getty Images

ASX energy shares have broadly reaped the rewards of rapidly rising energy prices over the past 12 months.

While the price of most energy sources, including coal and uranium, have increased, for the purposes of this article, we’ll narrow our focus on the oil markets. And on 3 leading ASX energy shares that concentrate on oil and gas production.

Namely, Santos Ltd (ASX: STO), Woodside Petroleum Limited (ASX: WPL) and Oil Search Ltd (ASX: OSH).

How have oil prices moved?

There are a few major crude benchmarks you can look to for global oil prices. The 2 we tend to quote here are Brent and West Texas Intermediate (WTI). While the 2 don’t move in perfect correlation, they do track one another fairly closely.

So how has WTI moved over the past year?

12 months ago, WTI was selling for US$40.62 (AU$54.16) per barrel. Today that same barrel is worth US$71.73. That’s an increase of 76%. And we’re not even going back to the early pandemic market lows, when WTI fell to US$16.94 per barrel on 24 March 2020.

Little wonder then that leading ASX energy shares involved in the sector have enjoyed outsized gains.

The Santos share price, for example, is up 41% over the past 12 months. The Oil Search share price has gained 29% over that same time. Only Woodside, up 12%, trails the 24% gains posted by the S&P/ASX 200 Index (ASX: XJO) since this time last year.

What can ASX energy shares expect from global oil prices?

Many factors will influence the price of crude oil over the remainder of 2021, and hence impact on ASX energy shares. How well the world manages to stamp down COVID-19 and reopen borders and travel remains a wild card.

Output from OPEC+ also remains somewhat of a wild card. The cartel failed to reach an agreement on any production increases last week, with the biggest rift appearing between Saudi Arabia and the United Arab Emirates (UAE).

For a more concrete idea of future global oil supply, we turn to the United States, which was briefly the world’s largest oil producer in the months prior to the pandemic.

Yesterday (overnight Aussie time) the US Energy Information Administration (EIA) released its new domestic oil production report. As Bloomberg reports, the EIA “sees limited domestic oil production growth through next year despite rising oil prices and rebounding demand”.

The EIA expects US crude output in 2022 to reach 11.9 million barrel per day (bpd), an increase of only 60,000 bpd from it previous forecast. The agency upped its price forecast for WTI in 2022 by US$6.23 per barrel to US$62.97 per barrel.

While that’s below today’s prices, it’s well above what crude was selling for 12 months ago.

Saxo Market’s head of commodity strategy, Ole Hansen, also offered a fairly bullish outlook for oil, noting US producers’ reluctance to turn the taps back to full. In Saxo’s Q3 2021 Quarterly Outlook report, Hansen writes:

While not in short supply, the oil market will be supported by a period of synchronised global demand growth where OPEC+ can increasingly control the price given the prospect of a lack of response to higher prices from non-OPEC+ producers; this is especially true for those producers in North America who are no longer pumping at all cost…

Tightening market conditions emerging during the past six months are another reason why, for the first time in a number of years, asset managers are once again viewing commodities as an interesting investment case.

As I wrote up top, a number of wildcards remain in play as to how oil prices will move. But if demand grows and increased output remains tight, it should offer continuing tailwinds for ASX energy shares.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of August 16th 2021

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Energy Shares