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Highlights
- Australia's energy stocks sub-index drops 1.5%, its lowest level since January 2, amid global oil price weakness.
- The sector is under pressure after rising interest in a Chinese AI model raised concerns about reduced energy demand for data centers.
- Despite today's losses, the energy sub-index is up nearly 1.6% year-to-date.
Australia’s energy stocks sub-index fell by 1.5% on Tuesday, marking its lowest level since January 2. The sector's decline was driven by global oil prices weakening after concerns emerged that a new, low-cost artificial intelligence (AI) model developed by Chinese startup DeepSeek could lead to reduced energy demand for data centers. As AI adoption surges, particularly in the energy-intensive tech sector, analysts are speculating that it could lower the need for energy to power these operations.
The energy sub-index initially dropped as much as 1.9% earlier in the day, representing its worst intraday loss since December 19. The broader concern stems from the impact that growing interest in AI might have on global energy consumption patterns, especially in data centers, which consume vast amounts of power.
Major energy players were also impacted by the downturn. Woodside Energy (ASX:WDS) shed 0.2%, while smaller peer Santos (ASX:STO) lost 0.4%. The fall in oil prices exacerbated the pressures on the sector, with investor sentiment weighed down by the potential slowdown in energy demand from the AI industry.
Despite the day's losses, the energy sub-index has seen positive performance in 2025, with a year-to-date gain of nearly 1.6%, indicating that the sector has managed to recover somewhat from earlier volatility.
The energy sector will continue to face scrutiny over how global trends, including advances in AI and fluctuations in oil prices, impact overall demand for energy. Analysts are likely to keep a close eye on these developments in the coming months, especially as new technologies and market shifts influence the global energy landscape.
