S&P/ASX 200 Index (ASX: XJO) energy shares have had a tough run of it over the past year.
Every company faces its own specific tailwinds and headwinds. But Woodside Energy Group Ltd (ASX: WDS), Santos Ltd (ASX: STO) and Beach Energy Ltd (ASX: BPT) have all been hit with slumping oil and gas prices.
When the closing bell sounded on the ASX yesterday, Brent crude oil was trading for (a rounded) US$75 per barrel.
That's up from the 11 September low of US$69 per barrel. But it still sees the oil price down more than 20% since this time last year, when the same barrel of Brent was fetching US$94.
So, how has this impacted ASX 200 energy shares?
Well, since this time last year:
- The Woodside share price is down 30%
- The Santos share price is down 8%
- The Beach Energy share price is down 27%
For some context, the ASX 200 has gained 15% over this same period, setting a series of new all-time highs over the 12 months.
The S&P/ASX 200 Energy Index (ASX: XEJ), on the other hand, has tumbled 22% over the year.
Here's why the energy sector could be in for better times ahead.
Three demand side factors to lift ASX 200 energy shares
The first bullish demand side signal for ASX 200 energy shares heading into 2025 are the new stimulus measures announced by the People's Bank of China (PBoC) this week.
Among other steps, the PBoC is reducing its cash reserve requirement ratio for Chinese banks by 0.50%, releasing some US$142 billion in liquidity.
Now, this latest move alone is unlikely to return China's struggling economy to its 5% growth target. But many analysts (me included) believe it's a sign that further stimulus will be rolled out as needed to boost the Chinese economy.
That should help spur energy demand in the world's number two economy, putting upward pressure on oil and gas prices.
The second demand side element I think will increase energy demand and help lift ASX 200 energy shares into 2025 are lower interest rates in the United States.
Last week, the US Fed moved to lower rates for the first time since it began tightening to bring inflation under control. The Fed dropped rates by 0.50% and flagged the likelihood of a series of additional rate cuts over the months ahead.
Lower interest rates should help boost energy demand from both consumers and businesses in the world's top economy.
Which brings us to the third reason I think ASX 200 energy shares could reignite heading into 2025 and keep burning bright for the long term. Namely the Organization of the Petroleum Exporting Countries' 2024 World Oil Outlook report (WOO), published on Tuesday.
In analysis unlikely to please ESG investors, OPEC is not only forecasting an uptick in global oil demand in 2025, but ongoing demand growth through to 2050.
That longer-term growth, it says, will be fuelled by the growing populations of developing nations. Developing nations are also forecast to grow their economies more rapidly than OECD regions through 2050. OPEC cites an annual growth rate of 3.7% for the non-OECD regions.
"Global energy demand in this year's WOO is set to expand by 24% in the period to 2050, driven by significant expansion in the non-OECD region," OPEC secretary general Haitham Al Ghais said.
"For oil alone, we see demand reaching over 120 million barrels a day by 2050, with the potential for it to be higher. There is no peak oil demand on the horizon," he added.
In what could provide long-term tailwinds for ASX 200 energy shares like Santos, Woodside and Beach Energy, OPEC forecasts that global oil demand will reach 112.3 million barrels a day (mb/d) in 2029, up from 102.2 mb/d in 2023.
Over the long run, OPEC forecasts global oil demand will increase by almost 18 mb/d, rising to 120.1 mb/d by 2050.
While OPEC expects that non-OECD demand will increase by 28 mb/d between 2023 and 2050, OECD demand is expected to decline.
