The Woodside Energy Group Ltd (ASX: WDS) share price has seen plenty of ups and downs over the past year. Energy prices are a key factor that influences the valuation of oil and gas ASX shares.
What's going on?
Supply and demand play an important role in energy prices, with geopolitical events sometimes causing spikes.
A couple of years ago, we saw what happened following the Russian invasion of Ukraine. More recently, there has been volatility amid the Israel and Gaza war.
The most recent concern from the Middle East has been Houthis in Yemen launching attacks on Red Sea cargo ships. Not only does this mean ships have to travel further to avoid trouble spots, but it also raises the prospect of a possible wider conflict escalation. This follows retribution attacks by the United States and the United Kingdom against the Houthis.
According to reporting by various media, including the BBC, Iran's navy has seized a US-linked oil tanker in the Gulf of Oman.
Does this matter for the Woodside share price?
Within the ASX share market here in Australia, worrisome macroeconomic events don't always have a noticeable impact on the profitability or operations of those businesses. Therefore, short-term share price falls can be opportunities to buy stocks at a cheaper price.
However, stocks linked to commodities are extremely dependent on the resource price for their profits, so a change in energy prices is important for Woodside shares.
Production costs don't change much month to month, so a rise in revenue is largely extra profit, while a revenue drop typically cuts into net profit.
Therefore, conflict in the Middle East may well send energy prices higher, which could help Woodside shares.
What are prices doing now?
Energy prices have been retreating over the last few months, just like the Woodside share price which is down 14% since 18 October 2023. Why might this be? Oil-producing countries have increased production, namely Iraq, Angola and Nigeria, according to Reuters.
OPEC countries increased production by around 70,000 barrels in December compared to November. More supply without an increase in demand usually means lower energy prices.
Is the Woodside share price a buy?
Broker Jarden Securities cut Woodside to underweight with a price target of $29, according to The Australian. That implies a possible fall of around 9% over the next year.
With a commodity-based business that normally goes through cycles, I think a good time to invest is near the bottom of the cycle. I'm not sure when significant weakness will come or how low it will go.
For now, I think other ASX resource shares (or non-resource ASX shares) could be better investments for now.
