ASX energy stocks are set to take the brunt of the sell-off this morning as the OPEC+ meeting sent the oil price tumbling.
The post Why ASX energy stocks are set to be among the worst performers on the ASX today appeared first on The Motley Fool Australia. –
ASX energy stocks are set to take the brunt of the sell-off this morning as the OPEC+ meeting rocked the oil price.
The Brent crude price tumbled 2.1% to US$50.74 a barrel as members of the oil cartel failed to reach an agreement on output quotas.
Split in OPEC+ adds pressure to ASX energy sector
As it is, the S&P/ASX 200 Index (Index:^AXJO) is expected to fall by 0.4% at the open on the back of a big drop in US stocks overnight. The broad-based sell-off is due to worries that the Democrats might win the Senate in the Georgia run-off.
But oil-exposed ASX stocks have an addition worry. The Organization of the Petroleum Exporting Countries and allies (called OPEC+) can’t seem to agree on how much oil the group should supply the market from February.
One reason the oil price managed to stage a sharp “V-shape” recovery from the COVID‐19 market mayhem in 2020 is because of OPEC+. These major oil producing nations managed to overcome self-interests to work together to limit supply as demand crashed.
Stalemate between Russia and Saudi Arabia
But self-interests could be dominating again. Reuters reported that Russia wants to lift output as it believes the global economy is regaining momentum, while Saudi Arabia warns it’s too early.
Russia thinks the end of the pandemic is near as mass vaccinations against COVID started in the US and UK. It warns that the failure to increase supply will allow US shale producers to win market share as the oil price is around levels that would make unconventional oil financially viable.
On the other hand, Saudi Arabia pointed to fresh rounds of lockdowns in many parts of the world as a reason to hold quotas in check.
New oil supply in the pipeline
Further, Iran may be allowed to turn on its oil spigots in the coming months. Incoming US President Joe Biden indicated he’s willing to remove sanctions against the Persian nation if it dismantles its nuclear program.
“Anything can happen, but Russia may not want to lose face and capitulate so easily,” Reuters quoted Bjornar Tonhaugen, head of oil markets at Rystad Energy.
“It looks like we may be in for some lengthy negotiations.”
Is it time to sell ASX-energy stocks?
However, this may not be the time for investors to dump ASX energy stocks. OPEC+ may yet work out a compromise. After all, this isn’t the first time the bloc has cracked.
While these countries haven’t had a great track record of cooperating before, in the last 12-months or so, they have shown considerable discipline.
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Motley Fool contributor Brendon Lau 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 Bruce Jackson.
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