The oil price is in free fall.
International benchmark Brent crude oil is down 4.6% over the past 24 hours, currently trading for US$77.42 per barrel.
That's the lowest level in more than four months.
And it sees the oil price down 16.2% in less than a month. On 19 October, a barrel of Brent was worth US$92.38.
As you'd expect this is putting some significant pressure on ASX 200 energy stocks, with the S&P/ASX 200 Energy Index (ASX: XEJ) down 1.6% today, and down 11.9% since market close on 18 October.
And the ASX 200 oil and gas stocks are feeling the heat again today. In morning trade on Friday:
- Beach Energy Ltd (ASX: BPT) shares are down 1.2%
- Woodside Energy Group Ltd (ASX: WDS) shares are down 2.6%
- Santos Ltd (ASX: STO) shares are down 1.1%
You're unlikely to hear motorists complaining at the petrol station.
But for investors in ASX 200 energy shares, the tumbling oil price may be eating into their next round of dividends.
So, what's going on?
Why is the oil price sliding?
Crude oil is getting hit from both the demand and supply sides of the equation.
On the demand side, investors remain wary of a slowing global economy leading to reduced energy demand. Those fears were fanned by data out of the United States that showed industrial production in the world's biggest economy dipped 0.6%.
A slowdown in Chinese oil refinery throughput from the previous month's blistering pace is also stirring concerns about demand in the world's number two economy.
As for the supply side pressures on the oil price, the conflict in the Middle East has, fortunately, not escalated beyond the Israeli and Gaza area to date, mitigating fears that production could get hit in the oil-rich region.
And oil stockpiles in the US are ratcheting up, increasing by 3.6 million barrels last week to 421.9 million barrels, the highest level since August, according to the US Energy Information Administration (EIA).
In part due to record output in the US Permian Basin, the International Energy Agency (IEA) noted in its November report, "World oil supply growth is also exceeding expectations."
What's the outlook for ASX 200 oil and gas stocks then?
I wouldn't run and sell your Santos, Beach Energy or Woodside shares just yet.
In fact, today may be an opportune time to buy more of the ASX 200 oil and gas stocks at potentially bargain prices amid the lower oil price.
The IEA and OPEC+ both believe oil demand will increase in 2024 from this year's levels.
"Global oil demand is set to rise to a record annual high of 102.9 million barrels per day (mb/d) in 2024," the IEA said.
The IEA added that global oil demand is "still exceeding available supplies heading into the Northern Hemisphere winter".
Phil Flynn, an analyst at Price Futures Group, blamed much of the sell-down on sentiment.
According to Flynn (quoted by Reuters), "The mood is negative, the charts are negative. It's going to take something to change that mood, and until then people will ride it down until they realize it's overdone."
And Goldman Sachs isn't put off by the past month's retrace either.
The broker is forecasting the Brent crude oil price will average US$92 per barrel in 2024. That's 18.8% above current levels.
Goldman strategist Daan Struyven believes that the rebound will be driven by a 700,000 barrel per day deficit.
According to Struyven (courtesy of The Australian Financial Review):
We see solid 1.6mb/d demand growth given solid GDP growth, structural EM increases, and a jet fuel recovery. US supply growth is set to slow given falling rigs, capital discipline, and soft productivity. We assume a gradual unwind of the extra Saudi cut, and extended group cuts because they support revenues.
While it may not be welcome news to motorists, an 18.8% increase in the oil price will certainly offer some welcome tailwinds to the ASX 200 energy stocks like Woodside, Beach Energy and Santos.
