S&P/ASX 200 Index (ASX: XJO) energy shares are taking a big hit on today.
In early morning trade on Monday the ASX 200 is down 2.2%. Aussie stocks are under pressure after another sharp day of selling in United States' stock markets on Friday.
That selloff is largely being fuelled by fears that the US Federal Reserve has waited too long to cut interest rates and that the nation could now be heading for a recession.
As for ASX 200 energy shares, at the time of writing:
- The Woodside Energy Group Ltd (ASX: WDS) share price is down 2.4%
- The Santos Ltd (ASX: STO) share price is down 2.8%
- The Beach Energy Ltd (ASX: BPT) share price is down 3.1%
Looking at the broader energy sector, the S&P/ASX 200 Energy Index (ASX: XEJ) is down 2.7%.
Here's what's happening.
Plunging oil price hammers ASX 200 energy shares
ASX 200 energy shares are feeling the pain from a sharp retrace in global oil prices.
Brent crude oil plunged 3.4% over the weekend to trade at $76.81 per barrel. That's down from US$80.72 per barrel on 1 August and down from US$87.43 one month ago. At the time of writing, Brent is trading for US$77.35 per barrel.
The oil price is facing pressure from both the demand and supply sides at the moment.
On the demand front, an unexpectedly sharp uptick in unemployment figures in the US last week flags the potential for reduced energy consumption in the world's biggest economy.
Similar concerns exist with China, the world's top oil importer and second-biggest economy, which is still struggling to rekindle its own sluggish growth.
"We moved from a demand-driven market to a geopolitical one for maybe two days then we absolutely nosedived on all this economic data," said Tim Snyder, chief economist at Matador Economics (quoted by Reuters).
The oil price and ASX 200 energy shares are also being pressured amid the prospect of increasing global supply.
In the US, analysts are speculating about a potentially sizeable increase in output from shale oil producers over the coming months following bullish guidance from some top producers.
And on Thursday, the Organization of the Petroleum Exporting Countries and their allies (OPEC+) opted to stick with their existing output cut policy, which calls for a gradual return to higher levels commencing in October.
The real wild card for ASX 200 energy shares like Woodside, Santos and Beach Energy remains the highly volatile situation in the Middle East.
We can only hope that tensions cool. But the possibility for an escalation into a broader regional war between Israel and Iranian-supported Hezbollah in Lebanon is too high for comfort.
Regardless of our portfolio holdings, let's hope cooler heads prevail.
