Skip to content

CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Macro Intelligence: Australian energy sector lags behind ASX 200 despite rising oil prices

While the ASX 200 Energy sector struggles to keep pace with the broader market, surging oil prices and geopolitical tensions hint at potential rebounds for major Australian energy producers.

Video poster image

Energy sector's performance

The energy sector (XEJ) has increased by 2% over the past year, underperforming the broader S&P/ASX 200 index, which has gained just under 9%. The S&P/ASX 200 Energy (XEJ) index comprises the 11 companies in the S&P/ASX 200 classified as members of the GICS Energy sector.

This index is primarily made up of companies involved in the construction or provision of oil rigs, drilling equipment, or those engaged in the exploration, production, marketing, refining, and transportation of oil and gas products, including coal and other consumable fuels. Notable companies include Woodside Energy (WDS), Santos (STO), and Whitehaven Coal (WHC).

The S&P/ASX 200 Energy (XEJ) year-to-date chart

Source: Google

The S&P/ASX 200 Energy (XEJ) index

Source: S&P Dow Jones Indices

Oil volatility and how the trend is turning

The oil price is known for its volatility and has been rising recently, with US futures reaching a five-month high in April. There is anticipation that demand will grow in the US if the Federal Reserve cuts interest rates in June, potentially boosting economic activity.

Recent manufacturing data from the US and China also indicate an increase in oil demand. Supply-side factors include reports that Saudi Arabia may raise its official selling price in May and that Russian production is decreasing in line with OPEC+ production cuts. Furthermore, Ukrainian drone attacks on Russian refineries and an Israeli strike on Iran’s embassy in Syria have contributed to rising oil prices.

USD Bbl price

Source: Refinitiv

Australian LNG producers

The share price performance of Australian LNG producers closely correlates with oil prices. As oil prices increase, shares of companies like Woodside (WDS), Santos (STO), and smaller entities such as Karoon (KAR) usually rise. However, stock-specific factors also play a role. For instance, Woodside's recent completion of a 10% stake sale in its Scarborough LNG project for $910 million garnered little reaction in its share price.

Citi vs. Refinitiv: contrasting views on Woodside

Concerns among brokers primarily revolve around Woodside's assets in Senegal, especially with the ongoing elections that might lead to contract renegotiations. Citi has reduced its price target for Woodside to $24.00, maintaining a ‘sell’ rating, while Macquarie, citing concerns over the 'dividend cliff,' has given a ‘neutral’ rating with a $24.00 price target. Despite these concerns, Woodside’s share price has been rising with the oil price.

Refinitiv data indicates a 'buy' recommendation for Woodside, with a price target of $32.99, including two 'strong buy' ratings.

Macquarie notes that the energy sector, along with mining, insurance, utilities, and banking, are among the cheapest sectors on the ASX, with energy being particularly undervalued relative to its history. Concerns about the energy transition are believed to be affecting the sector's valuation.

Woodside Energy daily chart

Source: IG

Analyst mean ratings and future projections

Source: Refinitiv

Navigating Ampol and Viva Energy

While the S&P/ASX 200 Energy sector is dominated by Woodside and Santos in terms of market capitalisation, Ampol (ALD) and Viva Energy (VEA) in the downstream energy market can present opportunities for investors, along with uranium companies including Paladin Energy (PDN) and Boss Energy (BOE).

In a recent report, Morgan Stanley points to continuing consolidation and competition across the Australian petrol retail landscape. It also notes the outperformance of Ampol and Viva Energy on higher refining margins, and in Viva’s case, a shift in retail which is supportive of five-year growth targets.

Morgan Stanley also highlights elevated fuel prices and fuel margins which are higher compared to five-year averages. It is also anticipating a mid-cycle investor rotation into downstream stocks but remains wary of consumer sentiment.

Ampol Limited daily chart

Source: IG

Viva Energy daily chart

Source: IG

Paladin Energy's production triumph

Australian-listed uranium stock prices also largely rise and fall with the price of the underlying commodity. However, newsflow can also dictate share price appreciation (or otherwise).

Take, for example, Paladin Energy (PDN), which saw its share price jump at the start of April after it achieved commercial production at its 75%-owned mine in Namibia on March 30th. Paladin says its focus will now shift to production ramp-up and product inventory ahead of shipments. Paladin shares have risen 39% this year (as of March 30th) compared to a 4% increase in the benchmark S&P/ASX 200 index.

Three analysts have a ‘strong buy’ recommendation on Paladin, while five brokers rate it a ‘buy.’

Paladin Energy daily chart

Source: IG

Analyst ratings for Paladin and Uranium

Source: Refinitiv

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

Speculate on commodities

Trade commodity futures, as well as 27 commodity markets with no fixed expiries.

  • Wide range of popular and niche metals, energies and softs
  • Spreads from 0.3 pts on Spot Gold, 2 pts on Spot Silver and 2.8 pts on Oil
  • View continuous charting, backdated for up to five years

Put learning into action

Try out what you’ve learned in this commodities strategy article risk-free in your demo account.

Ready to trade commodities?

Put the lessons in this article to use in a live account – upgrading is quick and simple.

  • Deal on our wide range of major and niche commodities
  • Protect your capital with risk management tools
  • Enjoy some of the best spreads on the market – Spot Gold from 0.3 points

Inspired to trade?

Put what you’ve learned in this article into practice. Log in to your account now.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Plan your trading week

Get the week’s market-moving news sent directly to your inbox every Friday. The Week Ahead gives you a full calendar of upcoming economic events, as well as commentary from our expert analysts on the key markets to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.