It’s time to buy the dip in WDS, STO and other ASX energy...

It’s time to buy the dip in WDS, STO and other ASX energy stocks, says Ord Minnett

• Australian broker Ord Minnett has cut its crude oil forecasts but notes the probability of a rebound within 12–18 months of an impending trough is high.
• Current prices of ASX energy stocks imply they’re trading at a discount to Ord Minnett’s new crude oil forecasts and this is causing the broker to see emerging value in the sector.
• Ord Minnett has upgraded its ratings for WDS to buy, as it adopts a new selective “buy the dips” strategy toward ASX energy stocks.

As geopolitical and economic headwinds mount, global financial markets are once again on edge. Investors are concerned that the ongoing trade tensions between the United States and China is not going to be merely a political spectacle – it is going to weigh on global trade volumes, corporate earnings, and therefore by extension – stock prices. Arguably, one month into the two countries tit-for-tat reciprocal tariff spat – it already is.

Few areas of the global economy are more exposed to such macroeconomic uncertainty than commodities, and this represents a major challenge for Aussie investors who invariably have some exposure to the sector in their portfolios. Within the commodities universe, one sector has been particularly harshly dealt with during the recent market volatility – energy – but was already in the doldrums.

Woodside’s rating is upgraded to BUY from HOLD, joining the other two BUY-rated upstream producers. Ord Minnett believes much of the downside risk in Woodside is already priced in, noting “execution and financial risks from its project pipeline are now more than fully discounted in the share price”.

In addition to upstream producers, the broker also favours downstream refiners such as Ampol ALD and Viva Energy VEA, both BUY-rated, as both are seen as better positioned to weather crude oil price volatility due to their integrated operations and domestic market orientation.

On the other hand, explorers and utility-like energy firms were less favoured in this review cycle. The broker remains selective, warning that not all stocks will bounce back equally when the crude oil price eventually recovers.

Conclusion: Opportunity or value trap?

While the outlook for the global economy remains murky, particularly with heightened geopolitical tensions and a fragile energy demand backdrop, Ord Minnett’s latest views allow for a degree of cautious optimism with respect to Australian energy stocks.

Their revised crude oil price forecasts reflect both near-term pessimism and longer-term structural realities, but they also suggest substantial upside once the tide eventually turns – possibly soon given the current crude oil price already reflects key cost of production metrics.

Further, the broker’s assessment that many ASX energy stocks are currently pricing in an unrealistically low crude oil price scenario opens the door for opportunistic entry points for those willing to take a calculated risk.

Still, investors should tread carefully. As always, the risk of “catching a falling sword” remains real, particularly in a sector that’s prone to sharp price swings and sentiment-driven moves.