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

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.

S&P/ASX 200 Energy Sector Index Total Return (XEJA) versus other major ASX 200 sector total return indices and the benchmark S&P/ASX 200 Total Return Index (XJOA). Total Returns used, i.e., dividends and capital gains - hence the "A" suffix to typical sector ticker codes, e.g. Discretionary (XDJA), Financials (XFJA), Healthcare (XHJA), Information Technology (XIJA), Industrials (XNJA), Real Estate (XPJA), Staples (XSJA), Resources (XJRA), Utilities (XUJA), etc. (click here for full size image)

The S&P/ASX 200 Energy Sector Index (XEJ) is the worst performing major sector index over the past 15 months. It has underperformed the benchmark S&P/ASX 200 (XJO) by approximately 32% since it peaked last in August 2023, reflecting a broad-based investor exodus from oil and gas, coal, and uranium stocks, as these commodity prices ebbed lower due to a combination of energy transition factors and slowing global growth.

Yet, amidst the gloom, a glimmer of opportunity may be emerging. A new research note from Australian broker Ord Minnett acknowledges the near-term bearish outlook for the crude oil price but also that there are signs of emerging value in the already beaten down ASX energy sector. The broker has re-evaluated its entire sector coverage, has adjusted its earnings models, and has issued several rating changes – culminating in what it calls a “selective” “buy the dips” strategy.

This article explores the broker’s latest market insights and the investment implications for energy-focused value investors.

Ord Minnett crude oil price forecasts

Ord Minnett’s has revised its crude oil price forecasts in the wake of recent production increases from OPEC+, which have added pressure to an already oversupplied market. The broker also acknowledges concerns over global demand remain unresolved as trade war tensions cloud the outlook for energy consumption, particularly in industrial and transport related sectors.

Ord Minnett notes that oil prices are likely to remain under pressure in the near term, but highlights a tendency in historical patterns for prices to rebound quickly after a trough. As for the near term, the broker has lowered its 2025 crude oil forecast to US$60/bbl, down from its previous forecast of US$70/bbl. This puts its forecasts roughly in line with the current price of West Texas Intermediate Crude Oil of US$59.61/bbl.

Its 2026 projection has similarly been trimmed to US$70/bbl from US$80/bbl (note that both base assumptions assume an Australian dollar exchange rate of US$0.63 in CY25 and US$0.65 in CY26). Ord Minnett maintains its long-term real oil price forecast at US$75/bbl, arguing that this level is necessary to incentivise investment in new supply.

On this item, the broker also points out that many upstream producers require oil prices in the US$60–70/bbl range to secure debt financing, and industry-wide break-even levels are hovering around US$62/bbl. The implication is that current market pricing is likely unsustainable, and as such, Ord Minnett expects the market to revert toward the US$75–80/bbl range as supply tightens and demand eventually recovers.

“Our analysis suggests the average time for oil prices to bottom out from a cycle peak is around five months,” the report states. “From there, however, our model shows circa 75–85% of the price fall is recouped over the 12–18 months post the trough.”

Ord Minnett ASX energy stocks strategy

Ord Minnett’s historical analysis offers a glimmer of optimism for ASX oil producers (and by extension – long suffering investors in them!). Against what could best be described as a mixed backdrop, Ord Minnett prefers a “buy the dips” strategy – but only on a “selective basis”.

The broker expresses a strong preference for quality producers over explorers and utilities. The emphasis here is on companies with robust asset portfolios, disciplined capital management, and clear project execution pathways.

Among Ord Minnett’s preferred downstream producers are Karoon Energy (ASX: KAR), Santos (ASX: STO), and Woodside Energy (ASX: WDS). According to the broker, the share prices of these three companies are pricing in an oil price of just US$48–62/bbl –  well below both the broker’s medium- and long-term forecasts.

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 (ASX: ALD) and Viva Energy (ASX: 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.

Here’s a summary of Ord Minnett’s latest rating and price target changes for ASX energy stocks:

• Woodside Energy (WDS) upgraded to BUY, but price target cut to $25 from $27 (25.4% upside based on 6-May close of $19.94)

• Santos (STO) retained at BUY, but price target cut to $7.50 from $8.20 (27.6% upside based on 6-May close of $5.88)

• Karoon Energy (KAR) retained at BUY, but price target cut to $2.60 from $2.80 (83.1% upside based on 6-May close of $1.42)

• Ampol (ALD) retained at BUY, price target retained at $34 (36.3% upside based on 6-May close of $24.95)

• Viva Energy (VEA) retained at BUY, price target retained at $3.40 (89.9% upside based on 6-May close of $1.79)

• APA Group (APA) downgraded to ACCUMULATE from BUY, price target retained at $8.60 (2.9% upside based on 6-May close of $8.36)

• Strike Energy (STX) downgraded to HOLD from BUY, price target retained at $0.31 (72.2% upside based on 6-May close of $0.18)

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.