Why are ASX 200 energy shares underperforming today?

S&P/ASX 200 Index (ASX: XJO) energy shares are well into the red in lunchtime trading.

At the time of writing, the ASX 200 has edged back from earlier losses and is just 0.09% lower.

While the S&P/ASX 200 Energy Index (ASX: XEJ) has also made up some lost ground from earlier in the morning, the energy index remains down 1.23%.

The Santos Ltd (ASX: STO) share price has fallen in line with the energy index, down 1.22%, while rival ASX 200 energy share Woodside Energy Group Ltd (ASX: WDS) is down 1.94%.

Why are ASX 200 energy shares underperforming today?

ASX 200 energy shares are under pressure today after another drop in crude oil prices.

International benchmark Brent crude dropped below US$100 per barrel for the first time since February, currently trading for US$99.06 per barrel. This time last month that same barrel was worth US$122.27.

While the forces that drove energy costs higher are still in play, counter forces have been pulling prices lower.

The biggest headwind for oil prices is the potential for a significant dip in demand.

Investors are keeping a close eye on the resurgent pandemic in China, where COVID cases are again on the rise. Should China, the world’s most populous nation and second-biggest economy, reinstate strict lockdowns in its major cities, demand for oil and related fossil fuels will decrease.

Another area of concern is the United States. Economists are concerned the world’s largest economy could be heading for a recession amid aggressive interest rate hikes to tame soaring inflation.

Yet oil prices, and ASX 200 energy shares, could be in for another leg up amid continued tight supplies.

Global energy crisis could get worse

International Energy Agency (IEA) executive director Fatih Birol said that energy demand may continue to outpace supply for some time. “We might not have seen the worst of it yet,” he said.

Among the supply issues, the US, one of the world’s top oil producers, lowered its own crude oil growth forecast through 2023, with a tight labour market and inflation impacting the sector.

While the US administration is hoping that OPEC can fill some of the void left by bans on Russian oil exports, Saudi Arabia and the United Arab Emirates are the only members said to have significant spare capacity.

Markets analyst at Hargreaves Lansdown Susannah Streeter pointed to ongoing concerns around Russia as potentially continuing to distort energy markets (quoted by Yahoo News):

Although deteriorating growth in economies would be a downwards force on the oil price, fresh attempts to limit Russia’s financial power, by imposing a price cap on its crude exports, could distort markets further adding to volatility.

Investors in ASX 200 energy shares will be watching these developments closely.

The post Why are ASX 200 energy shares underperforming today? appeared first on The Motley Fool Australia.

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More reading

• Is the Santos share price in bargain territory for FY23?
• Can the second half of 2022 be even better for the Woodside share price?
• How does the Woodside dividend compare to Santos over the last 5 years?
• 5 things to watch on the ASX 200 on Wednesday
• What’s the outlook for ASX 200 energy shares in FY23?

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. 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.

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