Why 2022 could be a strong year for the Woodside (ASX:WPL) share price: Saxo Markets

The rush to sustainable energy is inadvertently offering tailwinds to ASX oil and gas shares.

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Key points

  • The Woodside share price is closely linked to the price of energy
  • Saxo analysts forecast that crude oil prices are likely to rise in 2022
  • EVs won’t derail combustion engine vehicles for a number of years yet

The Woodside Petroleum Limited (ASX: WPL) share price is off to a strong start in the new year.

Since trading started on 4 January, Woodside shares have gained 10%. That’s in stark contrast to the broader S&P/ASX 200 Index (ASX: XJO), which is down 6% so far in 2022.

But even with a few strong weeks behind it, the Woodside share price could deliver more outsized gains in the year ahead, according to analysts at Saxo Bank.

Energy prices likely to remain elevated

Today, online trading and investment specialist Saxo Bank released its Q1 2022 Quarterly Outlook for global markets.

Drilling into what investors can expect for oil prices was Peter Garnry, Saxo’s head of equity strategy.

Garnry said that investment in the energy sector has been starved of vital new investments, “since the oil price plunge of 2014 to 2016 and subsequently, climate change awareness, coupled with ESG mandates and huge returns in stocks with exposure to digitalisation”.

According to Garnry:

The current level of capital expenditures is the lowest in 20 years in real terms and the lowest since 2004 in nominal terms. The investment drought that has lasted for more than seven years will set the stage for very attractive energy prices in the years to come.

As for EVs moving in to replace petrol cars, Garnry doesn’t see that happening in the short to mid-term:

The biggest consumer of oil is the transportation sector, and as it is getting electrified the oil market is potentially the biggest long-term loser from the green transformation. But before we get there, the sector will experience another very profitable period during the energy crisis years.

Indeed, Saxo’s technical analysts believe Brent crude could trade between US$107 and US$115 per barrel in the year ahead. They point to Brent needing to surmount “strong resistance” at US$86.75 per barrel. One barrel of Brent is currently trading for US$88.69 per barrel.

From a technical analysis angle for crude oil, Saxo adds:

The underlying trend is up, as illustrated by the 21, 55 and 200 Simple Moving Averages all rising. In addition, a Relative Strength Indicator (RSI) above 60 is also supporting this uptrend.

Woodside “a stock to watch”

Woodside may have smashed the ASX 200 so far in 2022, but that doesn’t mean its strong run is over.

Saxo’s Australian market strategist, Jess Amir, points to the likely rise in crude prices as helping support the Woodside share price. “Oil and oil stocks will also likely continue to dominate, given oil is likely to rise from the US$80s to US$100 amid rising demand as the world’s winters and summers become more extreme.”

According to Amir:

Woodside Petroleum is a stock to watch, as it’s set to become the world’s 10th biggest oil and gas producer, following the merger with BHP’s [BHP Group Ltd (ASX: BHP)] petrol business in Q2. Woodside produces 20 percent of Australian gas, competing with Chevron, Santos (ASX: STO), ExxonMobil and Shell.  

Woodside share price snapshot

Although it’s kicked off 2022 strongly, the Woodside share price remains down 5% over the past 12 month. By comparison the ASX 200 is up 5% during that same time.

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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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