ASX energy companies tend to keep a close eye on what’s happening with OPEC+.
The powerful Saudi-led oil cartel, which includes Russia, slashed oil output in early 2020, when the pandemic saw the global demand for fuel evaporate. More recently it’s been lifting its members’ production caps as the world began to reopen.
What did OPEC announce?
OPEC+ has agreed to increase its daily crude supply by 400,000 barrels per day (bpd). That’s largely in line with their earlier intentions. And the members agreed to the increase in an unusually brief video conference.
Commenting on the decision in the Australian Financial Review, Bart Melek, head of commodity strategy at TD Securities said, “COVID-19 continues to be a problem and OPEC+ seems quite comfortable injecting supply into this environment.”
Melek added that this “has many market observers worried about previous expectations of a significantly tighter market”.
Speaking on Bloomberg TV, Christyan Malek, head of oil and gas at JPMorgan Chase & Co, said, “OPEC have proven once again that they can meet and do things seamlessly.”
He noted that this harmony will likely come into play to enable the cartel “to respond flexibly” to any global supply and demand changes over the coming year.
With “expectations of a significantly tighter market” not in doubt, ASX energy shares may find their profit margins under increased pressure.
How have these ASX energy shares been performing?
Leading ASX energy share, Woodside Petroleum has seen its share price drop 11% over the past month. Shares remain up 2.5% over the past full year.
The Santos share price is also in the red over the past month, down 5%. The Santos share price is up 12% since this time last year.
Brent crude hit recent highs of US$77.16 on 5 July and has since retraced more than 7% to US$71.59.
Little wonder then that ASX energy shares are watching OPEC’s output forecasts closely.