Why are ASX 200 energy shares being hit so hard on Tuesday?

ASX 200 energy shares are trailing the tumbling benchmark today.

Bernd Struben

Author bio Bernd Struben earned his BA in economics from the University of Michigan in 1991, with post-graduate studies in environmental economics at the University of Connecticut. Over the years he’s written about and analysed the tourism industry in the Caribbean; Europe’s commercial real estate markets; and, since moving to Australia in 2010, global and Aussie share markets. Bernd studies geopolitical and macroeconomic trends, alongside sector and company specific data, to gauge what he believes could be tomorrow's best investments. In his free time, you might find Bernd at the beach with his family or working on his next science fiction novel. Areas of expertise Australian and global share markets Macroeconomic and geopolitical trends Real estate Education Economics, University of Michigan Favorite investment quote "The four most dangerous words in investing are: 'This time it's different." — Sir John Templeton

Published January 16, 2024 1:51 pm AEDT

S&P/ASX 200 Index (ASX: XJO) energy shares are deep in the red on Tuesday.

Here's how these top three ASX 200 energy stocks are performing at the time of writing in early afternoon trade:

Woodside Energy Group Ltd (ASX: WDS) shares are down 1.4%
Santos Ltd (ASX: STO) shares are down 2.0%
Beach Energy Ltd (ASX: BPT) shares are down 3.0%

For some context, the ASX 200 is down 1% at this same time.

So, why are these ASX 200 energy shares underperforming the benchmark?

Worker inspecting oil and gas pipeline. — Image source: Getty Images

ASX 200 energy shares under selling pressure

Beach Energy, Santos and Woodside shares are, as you'd expect, highly influenced by the price of oil and gas.

Atop the current oil price, forward-looking investors in ASX 200 energy shares will also attempt to gauge the future price outlook.

As for today's performance, despite the ongoing conflict in Gaza. and renewed attacks by Houthi forces against ships in the crucial Red Sea shipping corridor, the oil price slipped again overnight.

Brent crude oil is currently trading for US$78.01 per barrel, down 0.2%. That sees the oil price down 3.6% since 26 December. And Brent crude has plunged some 20% since trading for US$97 per barrel as recently as 27 September.

The market remains jittery about the potential for the conflict to spread across the oil-rich region. But the oil price and ASX 200 energy shares have slipped amid record output from the United States, the world's top oil producer, alongside increased supply from other nations outside of OPEC+.

That supply boost comes at a time when the forecast for demand growth in 2024 remains subdued.

Commenting on the oil price outlook amid the latest tensions in the Red Sea, Citigroup Inc analyst Francesco Martoccia said (quoted by Bloomberg), "It is not our base case that US/UK strikes on Houthi targets in Yemen and issues in the Red Sea will lead to a substantive upside in oil prices over the coming weeks."

However, Martoccia cautioned:

A possible escalation in tensions between Israel and Hezbollah and/or Iran, which the market believes may result in supply disruption, or actually results in supply disruption, is a larger concern in the near-term, though also not within our base case.

While a higher oil price would offer some welcome tailwinds for ASX 200 energy shares, let's hope this isn't driven by any further escalation in the Middle East tensions.

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