Certain ASX energy shares have climbed strongly in 2026.
Shares in Santos Ltd (ASX: STO) and Woodside Energy Group Ltd (ASX: WDS) have risen roughly 19% and 27% year to date respectively.
The gains were fuelled by a sharp spike in global oil prices as geopolitical tensions in the Middle East threatened supply.
However, the rally hit a speed bump on Tuesday. Oil prices retreated sharply after comments from US President Donald Trump suggested the conflict with Iran may be nearing its end. It sent crude prices back below US$90 per barrel and dragged ASX energy shares lower.
So, after such a strong run, where do these ASX energy shares go from here?
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Santos: Low cost production
This ASX energy share has been one of the standout performers in the sector this year, helped by rising oil and LNG prices and growing production.
A key driver is the company's expanding project pipeline. The Barossa gas project recently began shipping LNG, and together with the Pikka project in Alaska, Santos expects production growth of around 30% by 2027.
Higher output combined with strong commodity prices could translate into stronger cash flow and earnings in the coming years.
The company also benefits from relatively low production costs. When oil prices spike, much of that price increase can flow straight through to profits.
However, the risks are just as clear. Santos' recent share price gains are closely tied to the surge in oil prices, and history shows geopolitical price spikes can fade quickly once tensions ease. If crude prices retreat, the earnings tailwind could weaken just as quickly.
According to TradingView data, analysts remain positive on the ASX energy share price. Of 14 analysts covering the stock, 11 rate it a buy or strong buy.
The average 12-month price target sits at $7.76, implying about 5% upside from current levels, while the most bullish forecasts suggest the shares could climb to around $8.41.
Woodside Energy: Major LNG investments
Woodside has also benefited from the energy price surge. As one of the world's largest independent LNG producers, the company is highly leveraged to oil and gas prices.
Large projects such as Pluto LNG in Western Australia give Woodside significant exposure to global energy demand, particularly from Asia. When LNG and oil prices rise, Woodside's earnings outlook typically improves quickly.
But the company faces longer-term uncertainties as well. Global energy markets are becoming increasingly volatile, and the shift toward cleaner energy sources raises questions about long-term fossil fuel demand.
At the same time, Woodside is investing heavily in major new LNG developments, which require significant capital and long timeframes to generate returns.
Broker sentiment currently sits somewhere in the middle. Analyst consensus suggests an average 12-month price target of about $29.03, with ratings ranging from buy to hold depending on expectations for oil prices.
In a favourable energy cycle, some bullish forecasts suggest Woodside shares could eventually challenge $35.00. That points to a potential 16% upside over 12 months at the current share price of $30.18.
