The Woodside Energy Group Ltd (ASX: WDS) is encountering a challenging phase as its share price experiences a significant decline. Falling 9% in November 2023 and down approximately 20% since mid-September 2023, investors are keen to understand the factors influencing this downturn in the ASX energy share.
Commodity Price Impact
Being a resource company, Woodside's profitability is closely tied to the price of its commodity, and recent trends indicate a struggle. When commodity prices, particularly oil, decline, it often translates into reduced profitability. The oil price, which was near US$100 per barrel in September, has steadily decreased to below US$80 per barrel. This dip in oil prices raises concerns about the financial performance of Woodside.
Global Economic Factors
Reports highlight signs of a weakening global economy, marked by sluggish manufacturing activity globally. Eurozone factory activity is contracting, and there are mixed signals about the Chinese economy. Such economic softness can contribute to decreased demand for energy, impacting companies like Woodside.
OPEC+ Production Cuts
At the end of November, OPEC+ countries, including major oil-producing nations, agreed to cut around 2.2 million barrels of oil per day in the first quarter of the following year. However, the voluntary nature of these cuts raises questions about compliance and effectiveness, as noted by OANDA analyst Craig Erlam.
LNG Market Challenges
Woodside's significant focus on liquefied natural gas (LNG) faces headwinds as LNG prices experience a decline. The Asian spot LNG price recently hit a 7-week low due to weak demand despite colder weather. This poses challenges for Woodside, given its substantial involvement in the LNG sector.
Analyst Outlook and Projections
UBS, a prominent broker, expresses caution regarding growing risks associated with the Scarborough and Pluto 2 schedule. Regulatory approvals and challenges could impact equity sell-downs and LNG sales from Scarborough. UBS has adjusted its earnings projection for Woodside between now and 2025 due to the lower LNG price environment.
The broker maintains a price target of A$35.40 on Woodside shares, implying a potential rise of around 15% in the next year. However, this would only bring the ASX energy share back to its October 2023 levels, indicating the cautious sentiment prevailing in the market.
Predicting the future trajectory of Woodside's share price remains uncertain, especially given its dependency on volatile energy prices. The complexities surrounding Scarborough and Pluto 2, coupled with the broader challenges in the energy market, make it challenging to forecast the company's performance accurately.
In conclusion, Woodside Energy Group faces a confluence of factors impacting its share price. The influence of global economic trends, OPEC+ decisions, and the volatility in LNG prices contribute to the uncertainties surrounding the ASX energy share. Investors will closely monitor how Woodside navigates these challenges and whether it can regain momentum in the evolving energy landscape.