The energy sector is having a tough end to the week and is weighing heavily on the ASX 200 index on Friday.
In morning trade, the S&P/ASX 200 Energy index is down over 2%, with the likes of Beach Energy Ltd (ASX: BPT), Karoon Energy Ltd (ASX: KAR), Santos Ltd (ASX: STO), and Woodside Energy Group Ltd (ASX: WDS) all recording similar sized declines.
Why are ASX 200 energy shares sinking?
Investors have been hitting the sell button on Friday after oil prices sank deep into the red during overnight trade.
According to Bloomberg, the WTI crude oil price was down 4.3% to US$69.43 a barrel and the Brent crude oil price fell 3.9% to US$74.10 a barrel.
Traders were selling down oil prices after a larger-than-expected rate hike from the Bank of England and comments from the US Federal Reserve prompted worries about the economy and fuel demand. This offset support from a surprise draw in U.S. oil supplies.
It also wiped out recent gains driven by optimism that rising grain prices could make biofuels less attractive and support demand for crude oil.
Where next?
Price Futures Group's analyst, Phil Flynn, believes that prices are rangebound at the moment because of global economic uncertainty. He told CNBC:
We're locked in a trading range but prices are held back by the concerns about the economy, the larger economy.
Whereas Andrew Lipow, president of Lipow Oil Associates in Houston, highlights that high interest rates are overshadowing good news. He adds:
Given the decline in crude oil and the very modest increases in refined products inventories, I would have thought we would get a better response from the market, but the crude oil and refined product market is simply being weighed down by higher interest rates.
All eyes will now be on key Chinese factory activity data which is due to be released next week. This could provide an indication of the strength of China's economy and ultimately the oil demand outlook.
