A sharp rally in oil prices overnight has sent ASX energy stocks into the green this morning.
Woodside Energy Group Ltd (ASX: WDS), Santos Ltd (ASX: STO), and Beach Energy Ltd (ASX: BPT) are all posting strong gains.
At the time of writing, Woodside shares are up 2.5% to $24.19, Santos shares are up 2.5% to $6.88, and Beach Energy shares are up 4.5% to $1.29.
This is outpacing the broader ASX 200 index, which is trading slightly higher in morning trade.
So, what's behind the sudden surge? Let's find out.
Oil prices climb on rising geopolitical tensions
According to CNBC, crude oil prices jumped more than 4% overnight. This saw the West Texas Intermediate (WTI) price settle at US$68.15 per barrel, while Brent crude closed at US$69.77.
The gains were driven by growing concerns over escalating tensions between the United States and Iran.
This followed comments from US President Donald Trump expressing doubts about reaching a new nuclear deal with Tehran. He warned that "they seem to be delaying" and that he is "much less confident of a deal being made."
Meanwhile, the U.S. military has authorised the partial evacuation of its troops' dependents in the Middle East and is bracing for possible military escalation.
Iran's defence minister responded with threats that U.S. bases in the region are "within reach," adding to investor nerves.
The possibility of disrupted supply from the oil-rich region has put a fresh risk premium into oil markets — and that's been good news for ASX energy shares and those around the world.
What it means for ASX energy stocks
For companies like Woodside, Santos, and Beach Energy, higher oil prices can significantly boost earnings and free cash flow, especially when production and capital expenditure remain stable.
Woodside, for example, has FY 2025 production guidance of 186–196 MMboe and expects unit production costs to remain between US$8.50–US$9.20 per barrel. This means that any upside in oil prices could feed directly into margins and profitability.
Santos' production outlook is for 90–97 MMboe in FY 2025, with unit costs forecast to be in the range of US$7.00–$7.50 per barrel. This once again demonstrates just how positive increases in the oil price can be for the company.
Should you invest?
Morgans believes that Woodside shares are being severely undervalued by the market. The broker has an add rating and $30.10 price target on them.
Elsewhere, Macquarie recently put an outperform rating and $8.50 price target on Santos shares.
Unfortunately, none of the major brokers now have a buy rating on Beach Energy shares after UBS downgraded them to a neutral rating this week.
