Energy continues to be the outperforming sector on the ASX this year, with a number of macroeconomic and geopolitical events taking precedence in the energy markets.
At the time of writing, the S&P/ASX 200 Energy Index (ASX: XEJ) is tracking more than 1% higher on the day, extending year-to-date returns to 43%.
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What's in store for ASX energy shares?
The global energy markets remain susceptible to a number of undercurrents that are seeing record levels of pricing in 2022.
Oil and gas segments remain the key catalyst to changes in energy indices, resulting in large price swings in each market. Gains have stemmed large cash flows for energy and utilities players this year.
And just when market commentators had anticipated a pullback in the oil price, the Organisation of the Petroleum Exporting Countries (OPEC) agreed to steep cuts to its previously outlined production targets on Wednesday.
The cut will be equal to about 2% of total global supply, and is "necessary to respond to rising interest rates in the West and a weaker global economy", OPEC said, reported by Reuters.
Traders have rallied the oil price in response to the decision, with Brent Crude oil futures trading back in range with February 2022 levels – that's right before a huge breakout occurred.
Stepping back, however, there's been continued upside across all energy segments throughout 2022.
These trends are continuing, and with the latest surprise from OPEC, it stands to reason that energy markets could rally again.
Already we are seeing the impacts today with the ASX 200 Energy Index shifting back into gear after a sharp turn downwards in late September.
As seen in the chart below, the major energy commodities have pushed to multi-year highs – and in near vertical fashion. The strength of this move has yet to be overcome.
What does that mean?
The culmination of these factors puts ASX energy shares in prime position to capitalise on the opportunity.
Names such as Santos Ltd (ASX: STO), Woodside Energy Group Ltd (ASX: WDS), Yancoal Australia Ltd (ASX: YAL), and BHP Group Ltd (ASX: BHP) are front and centre, having each clipped strong gains already this year.
However, the rise in global inflation has, in part, been attributed to the rise in energy costs, which tie directly back to energy commodities.
With that, the Reserve Bank of Australia (RBA) has committed to a fight against inflation, using interest rates as its weapon of choice.
We'll have to wait and see the impact of the RBA's decisions. However, energy shares have been largely immune to the rising rates in 2022. That's not to say this will continue, but it's not to be ignored.
Inflation data for August–September, released next month, will be key to understanding the path the RBA will take, and what impact this will have on ASX energy shares.
In the meantime, there looks to be more volatility across energy sectors in the weeks ahead.
