S&P/ASX 200 Index (ASX: XJO) energy stocks have widely underperformed the benchmark so far in 2024.
While each company offers its own unique risks and opportunities, every energy producer has been slugged with slumping oil and gas prices.
Taking global benchmark Brent crude oil as an example, on 5 April, Brent was selling for US$91.71 per barrel. On August 8, that same barrel was trading for US$80.93. And today, a barrel of Brent crude oil is selling for US$72.16.
Bearing in mind that the ASX 200 has gained 8.2% year to date, here's how these top ASX 200 energy stocks have performed so far in 2024:
- Woodside Energy Group Ltd (ASX: WDS) shares are down 24.2%
- Santos Ltd (ASX: STO) shares are down 12.2%
- Beach Energy Ltd (ASX: BPT) shares are down 23.8%
- Karoon Energy Ltd (ASX: KAR) shares are down 34.1%
Ouch!
Now, following these sizeable falls, I'm generally bullish on the longer-term prospects of these high-quality stocks.
However, the latest global oil market report, released by the International Energy Agency (IEA), dampened my medium-term enthusiasm.
Headwinds ahead for ASX 200 energy stocks?
According to the IEA report:
With only six weeks left of the year, global oil demand is on track to expand by 920,000 barrel per day to an average 102.8 million b/d in 2024, compared with growth close to 2 million b/d last year and 1.2 million b/d per year on average over 2000-2019.
This brings us to the first headwind likely to keep the lid on global oil prices and pressure ASX 200 energy stocks into 2025.
Namely, China's sluggish economic growth.
"China's marked slowdown has been the main drag on [oil] demand, with its growth this year expected to average just a tenth of the 1.4 million b/d increase in 2023. Indeed, Chinese demand contracted for a sixth straight month in September," the IEA said.
The second and arguably more globally beneficial headwind facing ASX 200 energy stocks in 2025 is the ongoing adoption of alternative energy sources.
"Rapid deployment of clean energy technologies is also increasingly displacing oil in transport and power generation, adding downward pressure to otherwise weak demand drivers," the IEA stated.
Which leads to historically low expectations of oil demand growth in the year ahead.
According to the IEA report:
Our estimate of world oil consumption growth for 2025 is essentially unchanged at 990,000 b/d. The sub-1 million b/d growth pace for both years reflects below-par global economic conditions with the post-pandemic release of pent-up demand now complete.
A supply glut?
The third headwind looming for ASX 200 energy stocks in 2025 is the sizeable forecast increase in global oil supplies.
And with Donald Trump sweeping the United States presidential election, output from the US (already the world's top oil producer) is expected to ramp up even higher.
According to the IEA:
World oil supply is rising at a healthy clip. Following the early November US elections, we continue to expect the United States to lead non-OPEC+ supply growth of 1.5 million b/d in both 2024 and 2025, along with higher output from Canada, Guyana and Argentina.
All told, this leads to expectations that ASX 200 energy stocks like Woodside and Santos will face a global oil supply glut in excess of one million barrels per day in 2025. This glut could be bigger if OPEC+ begins to unwind its voluntary production cuts.
"Our current balances suggest that even if the OPEC+ cuts remain in place, global supply exceeds demand by more than 1 million b/d next year," the IEA said.
The agency noted a number of risks to its excess supply forecast for 2025, including "heightened unrest in the Middle East".
