S&P/ASX 200 Index (ASX: XJO) oil stocks are having a day to forget, with the big oil and gas companies facing multiple headwinds.
In early afternoon trade, the Santos Ltd (ASX: STO) share price is down 3.7% while Woodside Energy Group Ltd (ASX: WDS) shares have tumbled 5.17%.
Indeed, while the ASX 200 is down a hefty 1.42% at the time of writing, the S&P/ASX 200 Energy Index (ASX: XEJ) has dropped 4.4%.
So, what's going on?
What are investors considering?
ASX 200 oil stocks are being hit with two related but separate concerns that have sent the Brent crude oil price to its lowest level since late 2021. Brent is currently trading for US$73.95 per barrel.
First, investors are broadly skittish as the contagion from the United States banking crisis has spread to Europe.
Last week markets were roiled by the collapse of US-based SVB Financial Group (NASDAQ: SIVB), or Silicon Valley Bank.
This week it's Credit Suisse Group (SWX: CSGN) stoking investor fears. With the bank struggling to access additional funds, the Credit Suisse share price cratered 24% on the SIX Swiss Exchange overnight, reaching new all-time lows.
The prospect of a global banking crisis is sparking fresh recession fears. And a world in recession would demand less oil.
That's the demand side.
The second concern hitting ASX 200 shares today is an oversupply of crude oil. At least in the short term.
According to a monthly report just out from the International Energy Agency (IEA), oil stockpiles are at 18-month highs. That's partly due to Russia managing to actually up its crude production in February, despite international sanctions.
The IEA noted (quoted by Bloomberg):
World oil supply should comfortably exceed demand in the first half of the year. Much of the supply overhang reflects ample Russian barrels racing to re-route to new destinations… Russian oil supply has held up surprisingly well following its invasion of Ukraine … the country is still shipping roughly the same amount of oil to world markets.
Is now the time to buy ASX 200 oil stocks?
With ASX 200 oil stocks now well into the red in 2023, is now the time to buy?
That, of course, hinges on how crude oil prices track over the remainder of the year.
But for investors with a medium-term horizon of at least a year or so, I believe both the Santos and Woodside share prices will trade significantly higher inside the next 12 months than where they're at today.
Of course, there are no guarantees. And both ASX 200 oil stocks may well slide further from their current levels in the short term.
But the outlook for oil demand in the latter half of 2023 remains robust.
Both the Organization of Petroleum Exporting Countries (OPEC) and the IEA believe oil demand from China – the world's number two economy and most populous nation – will increase over the year.
CBA mining and energy analyst Vivek Dhar also believes China will help drive an uptick in global oil demand, along with the world's second most populous nation, India.
Dhar said he expects the current ample supply scenario won't last, which will drive crude oil prices higher in the second half of the year.
"We see deficit risks rising in H2 2023, as global oil supply growth, driven mainly by US, Norway and Brazil, fails to keep up with global oil demand growth," he said.
Dhar forecasts the Brent oil price will increase to $US88 per barrel in the second half of 2023.
That's up 19% from today's oil price.
If that proves accurate, it should offer some strong support for the ASX 200 oil stocks.
