Skip to content

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved.

Macro Intelligence: geopolitical tensions ignite the energy market

Geopolitical tensions in the Middle East are driving the oil price above $80, impacting energy stocks like Woodside Energy and Santos in the Australian market.

Video poster image

Article written by Juliette Saly (ausbiz)

Spotlight on the energy sector

In this week’s edition of IG Macro Intelligence, we take a look at the energy sector amid geopolitical risks.

Rising risk

One year on from the initial breakout of the Israel-Gaza conflict, the world remains on edge for a potential all-out war in the Middle East.

There has been a flurry of activity in the crude oil options market as Israel's Defence Minister declared all options were open for retaliation against Iran, following Tehran’s missile attack on 1 October.

WTI crude oil skew chart

WTI crude oil skew chart Source: Bloomberg
WTI crude oil skew chart Source: Bloomberg

Oil traders and hedge funds have reversed their bearish positions sparked by waning demand from China, turning the most bullish on crude options in two years, according to Bloomberg data.

Daily US crude oil chart

Daily US crude oil chart Source: IG
Daily US crude oil chart Source: IG

Brent crude oil has climbed above $80.oo a barrel, marking its highest price since August, as rising tensions spark concerns that Israel might target Iran’s oil infrastructure.

Goldman Sachs has indicated Brent crude oil could surge to the $90.00 a barrel level if Iran’s oil supply is disrupted, while US President Biden has called on Israel to consider options “other than striking oil fields.”

The Organisation of the Petroleum Exporting Countries (OPEC) claims to have enough spare capacity should Iran’s oil facilities be knocked out; however, the global oil supply could become imbalanced if Iran retaliates in a tit-for-tat strike in the Gulf.

Heating up

The S&P/ASX 200 enery sector (XEJ) is up almost 14% over the past four weeks, almost the same amount it has fallen over the past 12 months.

S&P/ASX energy market summary chart

S&P/ASX energy market summary chart Source: Google Finance
S&P/ASX energy market summary chart Source: Google Finance

AMP Economist Shane Oliver says the direction of the oil price and subsequent moves in the energy sector depend on Israel.

“If Israel’s response is proportional and focused on Iranian military facilities, then the oil price and shares will quickly settle down again, just as we saw after the exchange of missiles between Iran and Israel in April. This will be helped by Saudi Arabia raising production in December, Libyan oil production (1% of supply) resuming and rising non-OPEC production,” according to Oliver.

Louise Bedford from the Trading Game told ausbiz she sees technical signs the sector is cooling.

The other major factor is demand from the world’s number one oil importer, China.

According to the International Energy Agency, Chinese oil demand is currently firmly in contraction, falling by 1.7%, or 280,000 barrels per day, year-on-year (YoY) in July, a marked contrast with the 9.6% average pace of growth in 2023.

Chinese officials are attempting to boost economic activity through targeted stimulus measures, but sluggish growth and a switch to cleaner, lower-carbon fuels and electric vehicles (EVs) are dampening oil demand.

Energy plays

ASX Tradewatch data show investors see little reason to hold Santos shares at current levels, and should proceed with caution in buying into the recent rally in Woodside Energy shares.

Santos daily chart

Santos daily chart Source: IG
Santos daily chart Source: IG

Santos shares are down around 5% year-to-date, compared to the ASX 200’s 7.5% gain.

ASX Tradewatch data reveal shares are in a long-term bearish trend, with the 200-day moving average falling, showing demand for the stock is low.

Santos mean chart

Santos mean chart Source: Refinitiv
Santos mean chart Source: Refinitiv

However, Ord Minnett has just upgraded Santos to a BUY, with a price target of $8.40 and the median outlook on the stock is also a BUY according to Refinitiv data, with an average $8.20 price target. That suggests a gain of around 12.5% from current levels.

Woodside daily chart

Woodside daily chart Source: IG
Woodside daily chart Source: IG

Woodside Energy is Australia's largest independent dedicated oil and gas company.

Its shares appear to be in a strong near-term rally according to ASX Tradewatch trends.

However, it could be too soon to determine if it signals the start of a new long-term trend and the downward-sloping 200-day moving average indicates limited demand for this stock.

Woodside mean chart

Woodside mean chart Source: Refinitiv
Woodside mean chart Source: Refinitiv

The average recommendation on Woodside shares is a HOLD, according to Refinitiv data.

Ord Minnett rates the stock a HOLD with a $26.00 target price, while Citi group has a SELL with a price target of $23.24. Morgans recommends adding to the stock at these levels with a price target of $33.00.

Macquarie’s target price for Woodside is also $33.00, and the broker sees the stock outperforming as the producer keeps its cost controls in check, despite the inflationary environment.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. 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.

Explore the markets with our free course

Discover the range of markets you can trade CFDs on - and learn how they work - with IG Academy's online course.

Try IG Academy

Turn knowledge into success

Practice makes perfect. Take what you’ve learned in this shares strategy article, and try it out in your demo account.

Try it out

Ready to trade shares?

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

  • Trade over 13,000 popular global stocks
  • Protect your capital with risk management tools
  • Deal on 70 key US stocks out-of-hours, so you can react to news
Create live account

Inspired to trade?

Put the knowledge you’ve gained from this article into practice. Log in to your account now.

Log in now

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

You might be interested in…

<h3>How much does trading cost?</h3>
<h3>Find out about IG</h3>
<h3>Plan your trading</h3>

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.