ASX energy shares like Santos Ltd (ASX: STO) are struggling to make gains today even as the S&P/ASX 200 Index (ASX: XJO) rallied to a near three-week high.
There could be a few reasons for the underperformance of the sector, and the federal election may be one of them.
Australia will find out who will be running the country by next week and that can spell trouble.
How the federal election is weighing on ASX 200 energy shares
This is particularly so if we get a minority government or hung parliament as the major parties might be forced to adopt more radical climate policies that could hurt ASX 200 energy shares.
Santos chief executive Kevin Gallaher is one ringing the warning bells. He is warning the major parties against "knee-jerk reactions", reported The Australian.
Given how tight the polls are looking three days out from the election, the risks cannot be quickly dismissed. There could even be a temptation for minor parties or the independents to demand Australia follow the lead of the US.
Industry's warning against knee-jerk populist reaction
Gallagher told the APPEA energy conference today:
My request is no knee-jerk reactions and there's no big Biden style policy announcements on day one closing things down because I think that would be very disruptive.
That would not help with the energy transition.
US President Joe Biden introduced a ban on new oil and gas leases after coming to office. There is also a push to hike oil and gas royalties in the country to compensate for higher climate costs.
Both the Coalition and Labor have committed to net zero by 2050. But the Greens and many independent candidates are demanding even more aggressive action on climate change.
Oil price slide impacting Santos and other ASX 200 energy shares
But it isn't only political risks that are rattling ASX 200 energy shares. The drop in the oil price following the previous day's big rally is also putting a cloud over the sector.
The Brent crude benchmark fell 1.2% to US$112.55 a barrel, while the West Texas Intermediate (WTI) lost 0.2% to US$113.66 a barrel.
Against this backdrop, the Woodside Petroleum Limited (ASX: WPL) share price slipped 1.2% to $30.73 and the Beach Energy Ltd (ASX: BPT) surrendered 2% to $1.70 at the time of writing.
The Santos share price is faring a little better as it dipped 0.1% to $8.24. But it's still being left behind as the ASX 200 index jumped 0.8%.
Outlook for ASX 200 energy shares
Shareholders shouldn't feel too dismayed though. Most analysts are expecting the oil price to stay firm this year due to geopolitical factors.
Also, the Woodside and Beach Energy share prices have jumped around 30% each over the past year, while Santos is up 15%.
In contrast, the top 200 benchmark is barely in the black over the same period.
