Why are ASX 200 energy shares getting smashed in May?

ASX 200 energy shares are having a bad start to May. Is the worst now over?

| More on:
A person smashes a wall with a hammer, sending bricks flying.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

S&P/ASX 200 Index (ASX: XJO) energy shares have had a tough start to the new month.

With about an hour left before the closing bell sounds the end of the second day of trade in May, the ASX 200 is down 0.7%.

As for the big energy stocks, here's how they've performed over the two days since the end of April:

  • Woodside Energy Group Ltd (ASX: WDS) shares are down 4.2%
  • Santos Ltd (ASX: STO) shares are down 3.06%
  • Beach Energy Ltd (ASX: BPT) shares are down 3.2%.

Here's what's dragging on the energy sector.

Why are ASX 200 energy shares getting walloped?

The big fall so far in May for these ASX 200 energy shares is being driven by a tumbling oil price.

Brent crude oil dipped to US$83.54 per barrel earlier today before edging back to US$83.90 per barrel at time of writing. That's down from US$91.17 per barrel on 6 April.

It's a similar story with West Texas Intermediate crude oil. WTI has fallen below US$80 and is trading for $79.98 per barrel.

The oil price, and by extension ASX 200 energy shares, came under renewed pressure overnight after the United States Energy Information Administration (EIA) reported that US crude stockpiles increased by 7.3 million barrels last week. This widely exceeded consensus expectations.

"Demand concerns came into the limelight for oil traders as EIA data showed a surge in crude stockpiles and Fed chair Powell hinted at the delay in starting the easing cycle," Charu Chanana, head of FX strategy at Saxo Capital Markets said (quoted by Bloomberg).

Indeed, atop the unexpected increase in US stockpiles, the prospect of higher interest rates for longer in the world's top economy and other developed nations could portend lower fuel demand than markets have previously been pricing in.

The most welcome easing of tensions in the Middle East recently has also seen traders pull back bets that a wider regional conflict could upend oil supplies.

As for the supply side, a Bloomberg survey revealed that some OPEC members are cheating on their production cut pledges. Both Iraq and the United Arab Emirates were reportedly producing "several hundred thousand barrels a day" more than they agreed to.

Now what?

As to what investors in ASX 200 energy shares can expect from the oil price next, Vandana Hari, founder of Vanda Insights said (quoted by Reuters):

As the impact of the US crude stock-build and the Fed signalling higher-for-longer rates is close to being fully baked in, attention will turn towards the outcome of the Gaza talks.

In potentially good news for ASX 200 energy shares, a number of analysts believe we're pretty much at a bottom with today's oil price.

That's partly because the US federal government previously stated the nation would likely restock its massive strategic reserves if WTI falls below US$79 per barrel. The US drew down its oil stockpiles in 2022 to tamp down oil prices, after Brent crude soared to more than US$122 per barrel.

"The oil market was supported by speculation that if WTI falls below $79, the US will move to build up its strategic reserves," said Hiroyuki Kikukawa, president of NS Trading.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Energy Shares

Man holding Australian dollar notes, symbolising dividends.
Share Gainers

How a $9k investment in this ASX All Ords stock ballooned to $35,234 in just 3 years!

Shares in the ASX All Ords stock have rocketed even as it’s paid out market-beating dividends.

Read more »

A man sees some good news on his phone and gives a little cheer.
Energy Shares

Guess which ASX uranium stock is charging higher today

This stock is avoiding the market weakness on Friday. But why?

Read more »

A woman wearing a hard hat holds two sparking wires together as energy surges between them. representing the rising Li-S Energy share price today
Energy Shares

How much could a $10,000 investment in Woodside shares be worth in 12 months?

Here's what sort of returns one leading broker is expecting from the energy giant.

Read more »

Oil worker using a smartphone in front of an oil rig.
Energy Shares

Buying ASX 200 energy shares? Here's the latest IEA oil forecast

What can ASX 200 energy shares like Woodside expect in the year ahead?

Read more »

uranium mining, uranium plant, uranium worker
Energy Shares

Will ASX uranium shares run higher on this 'historic' supply ban?

The United States President has signed fresh uranium policy into law.

Read more »

A little girl stands on a chair and reaches really, really high with her hand, in front of a yellow background.
Share Market News

Is the Woodside share price at a stretched valuation right now?

Some are still optimistic on the energy giant, despite softer oil prices.

Read more »

Worker inspecting oil and gas pipeline.
Energy Shares

ASX 200 energy shares slip as cracks appear in OPEC unity

Woodside and Santos shares are both underperforming the ASX 200 on Monday. But why?

Read more »

Happy man standing in front of an oil rig.
Energy Shares

Guess which ASX energy shares are buys and could deliver huge 12-month returns

Morgans sees scope for these energy producers to rise materially from current levels.

Read more »