S&P/ASX 200 Index (ASX: XJO) energy shares could be set to regain some sizzle in 2024.
Having seen their share prices and dividend payouts surge in 2022 and into 2023 on the back of oil prices north of US$140 per barrel, the big energy stocks came under increasing pressure as oil tumbled below US$75 per barrel by June 2023.
2024 has been a decidedly different story, with the oil price trending steadily higher.
On 2 January, international benchmark Brent crude oil was trading for US$76 per barrel.
At market close yesterday, that same barrel was worth US$87.84.
That's up 15.6% year to date, and the highest level in five months.
Interestingly, only one of the big three ASX 200 energy shares focused on oil and gas has enjoyed a big share price lift so far from the oil price rebound.
Namely Beach Energy Ltd (ASX: BPT), whose shares are up by around 14% so far in 2024. Beach also trades on a fully franked dividend yield of 2.1%.
Santos Ltd (ASX: STO) shares have gained a much more modest 2% year to date. Santos shares trade on a fully franked dividend yield of 3.6%.
And Woodside Energy Group Ltd (ASX: WDS) shares have lost ground in 2024, down 3% despite the big lift in oil prices. Woodside shares trade on a fully franked dividend yield of 7.1%.
For some context, the ASX 200 is up a bit more than 3% this year.
Now, here's why I think the rest of 2024 could see these ASX 200 energy shares playing some catchup.
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Why now could be an opportune time to buy ASX 200 energy shares
While ASX 200 energy shares should enjoy higher revenues and higher profits amid higher oil and gas prices, energy markets are notoriously fickle.
And I believe many investors have been hesitant to pull the trigger and get back into the sector after the big retrace in 2023.
However, I think the rally we're seeing in global oil prices this year has some legs. Meaning I expect Brent crude won't dip too far below current levels and could well march above US$90 per barrel.
On the demand side, global oil demand is forecast to grow modestly this calendar year. While that may not be great news for the world's carbon reduction aims, it should help support the oil price and ASX 200 energy shares.
On the supply side, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) announced in early March that it would extend its production cuts, at least through to the end of June. And those cuts are more than offsetting near-record production in the United States and several other non-OPEC nations.
OPEC+ will make its next production announcement overnight tonight, with most analysts expecting the cartel to stick to its current reduced levels.
According to Bloomberg, that move will lead to an oil deficit through the end of 2024.
Commenting on the outlook, Warren Patterson, head of commodities strategy for ING Groep said (quoted by Bloomberg):
An escalation in tension in the Middle East has coincided with firmer oil fundamentals. The market is tightening thanks to OPEC+ supply cuts, which is evident with the strength we have seen in timespreads.
Patterson mentions another potentially strong tailwind for ASX 200 energy shares. Though not one we hope to see come to fruition.
Should the ongoing conflicts in the oil-rich Middle East erupt into a broader war, Brent crude could easily sail past US$100 per barrel amid global supply disruptions.
