ASX energy shares are copping a beating as the sector is the worst performer on the S&P/ASX 200 Index (Index:^AXJO).
The sector slumped 1.3% even as the ASX 200 benchmark climbed 0.2% to a new record high at the time of writing.
Renewed jitters of an oversupply of oil are weighing on the ASX energy sector. A surprise increase in US crude inventories, the spread of the delta-mutation and a weaker than expected US jobs report are behind the negative sentiment.
Fall in oil price weighs on ASX energy shares
The oil price fell in response even as political tensions in the Middle Ease are rising, reported Reuters.
The Brent crude price lost 2.7% to US$70.21 a barrel while the WTI price benchmark shed 3.2% to US$68.02 a barrel.
Little wonder that the Santos Ltd (ASX: STO) share price tumbled 1.7% to $6.35 as its merger partner Oil Search Ltd (ASX: OSH) fell 1.3% to $3.93 during lunch time trade.
The Woodside Petroleum Limited (ASX: WPL) share price was another big drag as it gave up 1.4% to $21.74.
What is causing the oil price to fall
The US Energy Information Administration (EIA) reported that stockpiles of crude unexpectedly rose by 3.6 million barrels last week, according to Reuters.
Meanwhile, demand outlook for oil took a hit as several countries combat outbreaks of the COVID-19 delta variant.
"Coronavirus cases worldwide surpassed 200 million on Wednesday," reported Reuters.
"The more-infectious Delta variant threatens areas with low vaccination rates and strains healthcare systems."
Demand outlook hits ASX energy shares
China and the US are prime examples. These countries are big consumers of oil and outbreaks of COVID have dampened demand for oil in the past.
Australians don't have to be told about the impact of lockdowns on consumption. Victoria could be following New South Wales and Queensland into another snap lockdown.
Further, the ADP data showed that US private employment increased by only 330,000 jobs in July. Economists were expecting 653,000 jobs.
No one listening to good news
The bad news was enough to distract investors from any positive developments, at least for today. Reports that Iran-backed forces have sized an oil tanker near the United Arab Emirates would usually trigger a spike in the oil price.
Investors are also ignoring the second part of the EIA report that showed a drop in gasoline inventories.
