Why are ASX 200 energy shares surging today?


ASX 200 energy shares continue their bullish momentum today as investors continue to position themselves for a number of macroeconomic and geopolitical factors.

The S&P/ASX 200 Energy Index (ASX: XEJ), a benchmark for the sector’s performance, has jumped 0.51% from the open today. It now trades back in line with its longer-term averages and is up 30% for the year so far.

Its rise comes as the S&P/ASX 200 Index (ASX: XJO) has dropped 1.23% in early morning trading following a tough day on US markets overnight.

Whilst not restricted to Australian shares, the Betashares Global Energy Companies ETF (ASX: FUEL) has also clipped a 24.5% gain this year to date, despite a sharp pullback in June.

Energy-based commodities are in the limelight once more as the market continues to evaluate a set of impending macroeconomic risks.

Adding to the pressure is an equally sensitive set of geopolitical factors around the US, Russian sanctions, and global oil supply.

Brent Crude oil ticked back up to US$118 per barrel overnight. It has regained support after a strong reversal this week.

Brent crude futures also regained momentum. According to Trading Economics, this happened “as traders weighed efforts by the US to include more economic powers in the G7 price cap on Russian oil, while OPEC production constraints elevated the risk of market tightness”.

Helping oil prices rise further was talk the UAE is nearing production capacity at the agreed quota with OPEC+. Meanwhile, oil-producing nation Libya is one step closer to declaring it’s unable to meet its contract obligations due to political unrest.

The price of US natural gas has also risen overnight, trading 1.25% higher at US$6.652/MMBtu.

Meanwhile, the Dutch TTF gas price has climbed 47% this past month whilst UK gas is up more than 101% year on year.

In fact, all energy markets continue to rally, with methanol the only segment posting a small 0.31% loss in the last 12 months.

What does this mean for ASX energy shares?

With oil, gasoline, heating oil, and natural gas continuing to power higher in June, this sets the scene for ASX 200 energy shares such as Woodside Energy Group Ltd (ASX: WDS), Santos Ltd (ASX: STO), and Beach Energy Ltd (ASX: BPT) to reap the benefits.

Each of these shares has posted double-digit gains in 2022, outpacing the growth of inflation by a substantial amount. All three are rallying today, as well.

At the time of writing, Woodside is trading 0.24% higher, Santos is up 0.4%, and Beach Energy is ahead 2.12%.

The surge in these markets is also set to produce some of the highest free cash flow yields for ASX 200 energy companies on record, which could translate to chunky dividends or share buybacks.

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