ASX 200 energy shares take a breather, broker sees “lot of upside risk” for oil

Goldman Sachs thinks oil will play catch up against other surging commodities.

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a man in a business suit looks at a map of the world above a line up of oil barrels with a red arrow heading upwards above them, indicting rising oil prices.

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S&P/ASX 200 Index (ASX: XJO) energy shares have pulled back in recent trading sessions despite oil prices continuing to advance.

The S&P/ASX Energy (INDEXASX: XEJ) index has slipped 0.95% in the last five trading days, weighed down by losses from heavyweights Woodside Petroleum Limited (ASX: WPL), Santos Ltd (ASX: STO) and Oil Search Ltd (ASX: OSH).

In spite of weakness across ASX 200 energy shares, West Texas Intermediate rallied US$2.04 or 2.51% in the past week to US$83.54 a barrel, a 7-year high. The global benchmark, Brent crude, is trading at 3-year highs of US$85.74 a barrel.

Goldman Sachs thinks oil has more legs to run

“Global oil prices could surge well above $90/b by the end of the year unless a current supply deficit amid rebounding energy demand can be reduced in the coming months,” said Jeff Currie, the head of commodity research at Goldman Sachs, as reported by S&P Global.

“This is a big hole to fill even with the production increases that we have penciled in going from now to the end of this year,” Currie said at the India Energy Forum by CERAWeek.

Goldman Sachs previously raised its oil forecasts from US$80/b to US$90/b in late September.

Its 26 September note said:

While we have long held a bullish oil view, the current global supply-demand deficit is larger than we expected, with the recovery in global demand from the Delta impact even faster than our above-consensus forecast and with global supply remaining short of our below consensus forecasts.

Currie thinks that oil has more legs to run, playing catch up against other surging energy power and gas prices, as well as other commodities such as copper and aluminium.

“The only reason why oil is lagging these other markets is that it was at the epicenter of the demand hit from COVID … we think it’s just a matter of months until oil joins the ranks of the rest of these commodities,” Currie said.

What does this mean for ASX 200 energy shares?

Surging oil prices have helped push many depressed ASX 200 energy shares into positive year-to-date territory.

It also helped prop up earnings, with Woodside Petroleum’s third quarter update showing a 70% jump in Brent crude oil prices to US$73/b compared to a year ago. This translated to a 19% quarter-on-quarter jump in revenues to $1.53 billion.

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