Here’s what’s driving support for ASX 200 energy shares

Supply issues are igniting strength in the ASX energy sector…

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A man in a hard hat puts his finger up to say 'number one' in front of an oil mine

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Energy shares are rallying while the S&P/ASX 200 Index (ASX: XJO) is sliding lower on Tuesday.

At the time of writing, the benchmark index is down 0.93% to 7,315.7 points. Meanwhile, the ASX 200 shares that make up the energy sector are blazing higher in a blaring green streak.

Notable high achievers include Beach Energy Ltd (ASX: BPT) and Whitehaven Coal Ltd (ASX: WHC), up 7.7% and 4.2% respectively.

Although a single day on the market won’t necessarily make or break a portfolio, analysts at Commonwealth Bank of Australia (ASX: CBA) have pointed out supporting factors for the rally.

Concerns of dwindling supply

ASX 200 energy shares are providing investors with a glimmer of green in portfolios on Tuesday. At a time when the broader market is struggling to find direction, Australian energy companies are bolstering the benchmark index.

Additionally, analysts at CBA have outlined evidence for the recent strength. One point is the broad strength in energy resources, although it is not only one source that is performing. Indeed, thermal coal, liquefied natural gas (LNG), and oil are all trending upwards.

In fact, thermal coal prices are nearing record levels at US$180 per tonne. This represents more than a tripling in price in the space of 12 months. The highest price per tonne on record is US$195 which was hit in July 2008.

Likewise, spot LNG prices have moved towards US$30 per metric million British thermal unit as delivered to North Asia.

Energy commodities analyst Vivek Dhar believes the increase in both of these fossil fuels has supported higher oil prices.

The rise in both fossil fuels has helped drive oil prices higher. Brent oil futures are closing in on $US80/bbl and are currently at the highest level since October 2018.

These prices are being led by growing demand from China as fears of a winter energy shortage loom. As reported by Bloomberg, nations are running low on natural gas — lacking the supply to heat homes and power industries.

In turn, countries are fighting to outbid each other to secure energy for their populations. The byproduct is sky-high energy prices.

Similarly, the experience is eerily the same at fuel bowsers across the UK. Multinational oil and gas company British Petroleum (BP) has reported nearly a third of its UK fuel stations are running low.

As a result, the effects of supply and demand are popping up in the form of elevated prices.

How have ASX 200 energy shares performed?

Coming out the other side of the COVID-19 crunch, energy shares have sprung back. The unwinding of lockdowns means more vehicles back on the road and aircraft in the sky that are guzzling fuel.

With expectations that supply will be outstripped by demand, many ASX 200 energy shares are enjoying price appreciation. Here’s a selection:

  • Santos Ltd (ASX: STO) up 37.8% in the past year
  • Oil Search Ltd (ASX: OSH) up 54.9% in the past year
  • Whitehaven Coal Ltd (ASX: WHC) up 200.5% in the past year
  • Woodside Petroleum Ltd (ASX: WPL) up 28.8% in the past year

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Motley Fool contributor Mitchell Lawler owns shares of Commonwealth Bank of Australia. 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.

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