S&P/ASX 200 Index (ASX: XJO) energy shares are leading the charge higher today.
In morning trade on Monday, the S&P/ASX 200 Energy Index (ASX: XEJ) is up a heady 1.2%. The ASX 200, meanwhile, is up 0.2%.
ASX energy stocks are enjoying a rebound in the global oil price over the weekend. Here's how the big three oil and gas shares are tracking at the time of writing:
- Beach Energy Ltd (ASX: BPT) shares are up 1.7%
- Woodside Energy Group Ltd (ASX: WDS) shares are up 1.0%
- Santos Ltd (ASX: STO) shares are up 1.6%
Here's what's happening.
ASX 200 energy shares riding the oil price boost
Last Friday saw the Brent crude oil price dip to US$77.42 per barrel, a four-month low, amid swelling stockpiles and record output in the United States.
But ASX 200 energy shares are kicking off this week with a significantly rosier picture. Brent crude gained 4.1% over the weekend, currently trading for US$80.61 per barrel.
Much of the oil price rebound is based on expectations that the Organization of the Petroleum Exporting Countries and its allies (OPEC+) will move to extend their production cuts later this month.
OPEC+ has already slashed millions of barrels per day from its potential output, led by cuts from Saudi Arabia.
The cartel meets again next week, 26 November. And JPMorgan strategists count among those who believe the organisation will at least maintain its restricted output.
According to JPMorgan strategists Christyan Malek, Otar Dgebuadze and Marko Kolanovic (courtesy of The Australian Financial Review):
OPEC's long-term pricing power remains strong. OPEC's oil policy is stability, and it will continue to play the role of 'Central Bank for Energy' in ensuring the industry can invest in future projects to protect the global economy from tail risks of significantly higher oil and short-term spikes beyond 2025.
And JP Morgan believes OPEC+ could take the next step and potentially slash production even further to support the oil price, and by connection ASX 200 energy shares.
"We don't rule out a scenario of deepening the cuts by up to a million barrels," the strategists said.
They said deeper cuts would help to "pre-emptively clear potential demand weakness in the first half of next year associated with a worse than expected developed markets-led recession".
And whether you're investing in oil futures or ASX 200 energy shares, Saudi Arabia remains the country to watch.
"We think Saudi Arabia does have meaningful flexibility to cut further, if needed," JP Morgan's strategists said.
"We may see, in addition, Saudi seek to 'share the load' of any potential further cuts among OPEC+ peers, a collective effort, rather than unilateral," they added.