S&P/ASX 200 Index (ASX: XJO) energy shares are struggling today amid a big upswing in crude oil stockpiles in the United States alongside ongoing record crude production.
Here's how the big three ASX oil and gas focused energy stocks are faring in afternoon trade on Thursday:
- Beach Energy Ltd (ASX: BPT) shares are down 3.8%
- Woodside Energy Group Ltd (ASX: WDS) shares are down 0.8%
- Santos Ltd (ASX: STO) shares are down 1.8%*
(*Atop the spike in US oil production and stockpiles, investors will also be mulling over what the latest federal court ruling on the Barossa gas pipeline could mean for Santos shares.)
With these ASX 200 energy shares under pressure, the S&P/ASX 200 Energy Index (ASX: XEJ) is down 1.0% at time of writing.
Here's what's happening in global oil markets.
ASX 200 energy shares feeling the supply side pressure
The Brent crude oil price slipped another 0.8% overnight, currently trading for US$80.48 per barrel.
While that's up from the recent lows of US$79.54 per barrel on 8 November, it puts the oil price down 16.4% since 27 September, when a barrel of Brent crude was fetching US$96.55.
As you'd expect, that's thrown up some headwinds for ASX 200 energy shares, with the ASX 200 Energy Index down 10.8% over that same time.
The latest data released by the US Energy Information Administration (EIA) yesterday (overnight Aussie time) may be good news for Aussie motorists. But it could continue to pressure Aussie oil and gas stocks, at least in the short term.
According to the EIA, US oil stockpiles increased by 3.6 million barrels last week to hit 421.9 million barrels. That's the highest level since August. And it's double the expectations of a 1.8 million barrel increase expected by analysts in a Reuters poll.
Adding to the downward pressure on global oil prices, oil production in the US – the world's top producer – continued apace at an all-time high of 13.2 million barrels per day.
"US supply activity is headwind for the market, and US is a problem for OPEC+," John Kilduff, partner at Again Capital LLC said (quoted by Reuters).
Kilduff said he doesn't believe Saudi Arabia will be able to cut more of its production to lift the oil price.
However, the medium-term picture for ASX 200 energy shares looks brighter, with both OPEC+ and the International Energy Agency (IEA) forecasting global demand to increase in 2024.
And Rob Thummel, a portfolio manager at Tortoise Capital Advisors, pointed to the unexpectedly large fall in gasoline and diesel inventories in the US as ultimately supporting oil demand (courtesy of Bloomberg).
Diesel inventories dropped 1.4 million barrels last week with gasoline inventories down 1.5 million barrels.
"Ultimately, that means refiners are going to buy more oil to produce refined products and that demand for oil ultimately will likely rise," Thummel said.