The market may be booming today, but the same cannot be said for Santos Ltd (ASX: STO) and Woodside Energy Group Ltd (ASX: WDS) shares.
They are under heavy selling pressure on Wednesday morning.
At the time of writing, Santos shares are down approximately 6%, while Woodside shares have tumbled around 11%.
Why are Santos and Woodside shares under pressure?
The key driver behind the sharp declines is a sudden and significant drop in oil prices.
According to CNBC, oil prices sank after US President Donald Trump agreed to suspend attacks on Iran for two weeks. This is in exchange for Tehran allowing a safe passage through the Strait of Hormuz.
Approximately 20% of global oil supply passes through the Strait under normal conditions.
This is a major shift in sentiment and great news for the global economy. In recent weeks, oil prices had surged to US$110.00 a barrel on fears that escalating conflict in the Middle East could disrupt global energy supplies.
But that risk has now been reduced, at least in the short term.
Why this matters for Santos and Woodside
Energy producers like Santos and Woodside are highly sensitive to movements in oil prices.
When oil prices rise, their revenue and earnings expectations typically increase. But when oil prices fall sharply, the opposite happens.
The scale of the move was significant. According to CNBC:
The West Texas Intermediate contract for May delivery fell more than 16% to $94.47 per barrel [and then] International benchmark Brent for June delivery lost more than 15% to $92.21 per barrel.
A double-digit percentage decline in oil prices in a single session is a major event. It forces investors to quickly reassess the earnings outlook for oil and gas companies.
That is why both Santos and Woodside shares are being sold off heavily today.
It also explains why fuel guzzlers like Qantas Airways Ltd (ASX: QAN) are roaring higher today.
A reminder of volatility
Today’s moves highlight just how sensitive ASX energy shares can be to global events.
Santos and Woodside are not falling because of company-specific news. Instead, they are reacting to macroeconomic and geopolitical developments that directly impact commodity prices.
While the long-term outlook for energy demand may remain intact, short-term price swings like this can create sharp volatility in share prices.
Overall, it is a timely reminder that owning energy stocks often means riding the ups and downs of global oil markets.
The post Why are Santos and Woodside shares crashing today? appeared first on The Motley Fool Australia.
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Motley Fool contributor James Mickleboro has positions in Woodside Energy Group Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.