S&P/ASX 200 Index (ASX: XJO) energy shares are sinking for the second consecutive day today.
In late morning trade the ASX 200 is up 0.2%.
But ASX 200 energy shares aren't helping out with the lifting. Here's how the big three oil and gas stocks are tracking at this same time:
- Woodside Energy Group Ltd (ASX: WDS) shares are down 0.9%
- Santos Ltd (ASX: STO) shares are down 0.9%
- Beach Energy Ltd (ASX: BPT) shares are down 1.8%
Investors look to be favouring their sell buttons here following another overnight retrace in the oil price.
Here's what's happening.
Why is the oil price slipping?
International benchmark Brent crude oil dipped another 0.1% overnight to US$77.47. That brings the weekly Brent crude oil price decline to almost 8%, with the oil price down more than 15% since 5 April, when that same barrel was fetching US$91.17.
West Texas Intermediate crude oil also declined 0.2% overnight to US$73.12 per barrel.
The oil price and ASX 200 energy shares continue to be pressured on the heels of this weekend's Organization of the Petroleum Exporting Countries and its allies (OPEC+) meeting.
While the cartel agreed to extend its existing production cuts through the coming quarter, it surprised the markets by saying production would begin to lift in October, with cuts phased out by June 2025.
This is likely to see OPEC produce an additional half a million barrels per day by the end of 2024, with production expected to increase by 1.8 million barrels per day by next June.
In what would prove good news for ASX 200 energy shares like Woodside, OPEC has a rather bullish outlook for global energy demand, forecasting that this demand growth will keep prices in balance amid the additional supply.
Headwinds brewing for ASX 200 energy shares?
Many analysts believe that OPEC's growth forecasts are overly optimistic.
That would mean the extra supplies coming to market could keep a lid on the oil price and the profit margins for ASX 200 energy shares.
According to Robert Rennie, head of commodity and carbon strategy at Westpac Banking Corp (ASX: WBC), quoted by The Australian Financial Review:
With global inventory rising, fuel inventory surging and more supply coming onstream through the fourth quarter, it's hard not to see a push-back into the US$75 to US$80 range that contained us for much of the first quarter this year.
Rennie is talking about Brent prices here.
Fundstrat Global technical analyst Mark Newton has an even more bearish take, expecting the oil price to fall further from here.
According to Newton:
WTI crude could very well revisit last December's lows in the high US$60's, as a minimum downside target, and should make energy a difficult sector to overweight in the short run.
It seems that traders viewed the lack of an output cut extension through year-end as bearish.
While that would likely throw up some shorter-term headwinds for ASX 200 energy shares, this could provide an opportune longer-term entry point in this highly cyclical market.
