It looks set to be a tough day for ASX 200 energy shares such as Beach Energy Ltd (ASX: BPT), Karoon Energy Ltd (ASX: KAR), Santos Ltd (ASX: STO), and Woodside Energy Group Ltd (ASX: WDS) on Wednesday.
That's because oil prices took quite the tumble during overnight trade on Tuesday.
According to Bloomberg, the WTI crude oil price was down 4% to US$69.76 a barrel and the Brent crude oil price has fallen 4.1% to US$73.89 a barrel.
Why are oil prices sinking?
Traders were selling down oil prices amid concerns over whether the U.S. Congress will pass the U.S. debt ceiling pact. In addition, mixed messages from major producers have clouded the supply outlook ahead of the key OPEC+ meeting this weekend.
In respect to the former, according to CNBC, some hard-right Republican lawmakers revealed that they could oppose a deal to raise the debt ceiling in the United States. And given how it is the world's biggest oil user, this could have dire consequences for demand.
Though, it is worth noting that US President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy remained optimistic the deal would still pass.
Price Futures Group analyst, Phil Flynn, told CNBC:
The big elephant in the room is the continued drama over the debt ceiling. Until we get the votes, the market is going to be on edge.
As for the latter, traders are reportedly uncertain about whether OPEC will increase output cuts as a slump in prices weighs on the market. This follows comments out of Russia indicating that it plans to stick to previous output plans.
Though, with Saudi Arabian Energy Minister Abdulaziz bin Salman warning short-sellers to "watch out", don't be surprised if OPEC takes aggressive action at this weekend's meeting to boost oil prices.
Before then, CNBC highlights that there will be economic data out of China that could also move oil prices. This includes Chinese manufacturing and service sector data. This will be looked closely at for cues on the fuel demand recovery in the world's top oil importer.
All in all, it looks set to be an interesting week for ASX 200 energy shares.
