Oil’s 4-Month Low: Why ASX Energy Stocks Face Headwinds in Q4

In the final quarter of 2025, oil prices are under significant pressure, reaching their lowest levels in four months. West Texas Intermediate (WTI) crude is hovering around $61.90 per barrel, while Brent crude is priced at $65.70. These declines in oil prices are directly impacting energy stocks, particularly those listed on the Australian Stock Exchange (ASX). The oil market’s downturn raises concerns about the sustainability of profits for major energy players like Santos and Woodside. In this blog, we’ll explore why ASX energy stocks face headwinds and provide an investor-oriented analysis of the factors contributing to this volatility.

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Oil Prices Dip to Four-Month Lows: What’s Driving the Downturn?

In early October 2025, global oil prices took a sharp fall. WTI and Brent crude benchmarks plummeted, with the former experiencing a loss of over 10% in just a few weeks. A mix of factors is behind the downturn, including:

OPEC+ Supply Increases: While OPEC+ has been gradually increasing production, the recent adjustment for November 2025 is a modest increase of 137,000 barrels per day. This increase in supply has dampened the bullish sentiment that had initially driven prices higher earlier in the year.

Demand Concerns: Global economic uncertainty is also a significant factor. Slower growth in key oil-consuming nations like China and India has led to fears of a demand slowdown. Furthermore, concerns over inflation and rising interest rates have weighed on investor sentiment, leading to a more cautious outlook for global oil consumption.

Refining Margins: In addition to weaker demand for crude oil, recent reports indicate that refining margins have been stable or slightly increasing due to above-average gasoline inventory draws. This squeezes profitability for upstream oil producers, putting further downward pressure on prices.

The confluence of these issues has resulted in oil’s steep decline, which in turn affects ASX-listed energy stocks, which are often directly correlated to the price of crude oil.

Impact on ASX Energy Stocks: Santos and Woodside in Focus

As oil prices slide, the ASX’s major energy companies are feeling the heat. Santos Ltd. (ASX: STO) and Woodside Petroleum Ltd. (ASX: WPL), two of the biggest players in Australia’s energy sector, are facing significant margin pressure, despite their otherwise strong fundamentals.

Santos: Santos, a major player in oil and gas exploration, is particularly vulnerable to lower oil prices. The company has a large portfolio of oil assets, which are more sensitive to price fluctuations. With a significant portion of its revenue tied to oil production, a sustained dip in prices is likely to impact its profitability. Moreover, with costs in areas like infrastructure maintenance rising, Santos may struggle to maintain its margins if oil prices remain low.

Woodside: Woodside is more diversified, with its focus on both natural gas and oil production. However, like Santos, the company is not immune to the impact of falling oil prices. As a major exporter of LNG (liquefied natural gas), Woodside benefits from a strong oil market, which helps drive up the price of LNG. If the oil price remains low for an extended period, it could lead to reduced earnings for the company, especially if LNG prices also experience downward pressure.

What Investors Should Watch: Key Risks for Q4 2025

The outlook for ASX energy stocks in Q4 2025 presents several risks that investors need to monitor closely. One of the most significant factors is the future of OPEC+ production cuts. If OPEC+ continues to ramp up production, the additional supply could exert more pressure on oil prices, further dampening market sentiment. On the other hand, any attempts to reduce output to stabilise prices may face resistance from non-OPEC members, creating an unpredictable and volatile market environment.
Geopolitical risks also remain a critical concern. Events in major oil-producing regions such as the Middle East and Africa can have profound impacts on oil prices. Tensions between nations like Iraq, Saudi Arabia, and Iran, along with potential disruptions in vital shipping lanes, could drive further volatility in the market, affecting the global oil supply and prices. However, it’s important to note that recent market conditions have been driven more by supply-demand dynamics than geopolitical tensions, which should be acknowledged for a more accurate perspective.
Another challenge for investors is refining margins, which have remained stable or slightly increased due to seasonal gasoline inventory draws. Energy companies like Santos and Woodside need to manage the costs associated with refining and storage effectively. With declining demand, the cost of storing excess oil could squeeze profitability, especially if refining margins remain compressed. However, refining margins have been stable or slightly increasing recently, so this statement should be revisited in light of the current data.
As the global focus shifts toward renewable energy, the long-term outlook for fossil fuel companies becomes more uncertain. Increasing government pressure through carbon taxes and stricter emissions regulations could weigh on oil and gas producers, reducing their future profitability. This transition to cleaner energy sources could be a significant risk factor for traditional energy stocks.
Lastly, currency fluctuations, particularly the performance of the Australian dollar (AUD) against the US dollar (USD), can impact ASX energy stocks. The Australian dollar has remained relatively stable against the US dollar, meaning that currency fluctuations may not provide as much relief as expected from falling oil prices. Investors should stay alert to these currency dynamics, as they can influence the profitability of energy companies in Australia.

Why Santos and Woodside Are Well Positioned for the Long-Term

Despite the short-term challenges, both Santos and Woodside remain solid investments in the Australian energy sector due to their diversified portfolios and commitment to cost management. Here are a few reasons why investors should still consider holding or acquiring these stocks:

Strong Gas Portfolios: Both Santos and Woodside have large natural gas portfolios, which are likely to remain in demand for the foreseeable future, particularly as the transition to cleaner energy sources takes time.

Expansion into Renewables: In response to the growing focus on sustainability, both companies are making significant investments in renewable energy projects, including offshore wind farms and solar power ventures. This diversification could help offset some of the volatility in the oil market.

Cost-Cutting Measures: Both companies have actively focused on reducing costs, improving operational efficiency, and increasing cash flow generation. In a lower-price environment, these measures can help buffer against margin compression.

Capital Discipline: Santos and Woodside are known for their disciplined approach to capital allocation. By prioritising high-return projects and avoiding unnecessary expansion, these companies are better positioned to weather the volatility in the oil market.

What This Means for Investors: Where to Focus

For investors seeking opportunities in the ASX energy space, it’s important to consider the risk-reward balance carefully. While oil prices remain under pressure, some energy stocks may be better positioned to navigate this turbulence.

Resources Portfolio: One of the most effective ways to manage risk in the current market is by diversifying investments within the energy sector. A resource portfolio that includes a mix of oil, gas, and renewable energy stocks will help mitigate the potential downside of a prolonged downturn in oil prices.

Free Report: To identify the best-positioned companies in the energy sector, investors should look for stocks that are not only insulated from the worst of the oil price volatility but also have long-term growth prospects.

Conclusion

The decline in oil prices has put significant pressure on ASX energy stocks, especially those with substantial exposure to oil production, like Santos and Woodside. As oil continues to fluctuate, investors should remain cautious but not panic. By focusing on companies with diversified energy portfolios, strong cost-control measures, and a clear long-term strategy, investors can still find opportunities for growth in the energy sector.
The outlook for Q4 2025 remains uncertain, and while the energy sector is facing headwinds, it’s important to keep a close eye on developments in oil prices, OPEC’s decisions, and the global economic environment. The companies that adapt and navigate these changes effectively will be well-positioned for future success.

FAQs

• Why are ASX energy stocks facing headwinds in Q4 2025?

  ASX energy stocks are under pressure due to a combination of falling oil prices, OPEC+ production increases, geopolitical tensions, shrinking refining margins, and the global shift towards renewable energy. These factors are creating an unstable market environment, which affects the profitability of companies like Santos and Woodside.

• How do OPEC+ production decisions impact oil prices?

  OPEC+ decisions regarding production levels directly affect oil prices. If OPEC+ increases production, the market is flooded with more supply, which can drive prices down. Conversely, efforts to reduce output to stabilise prices may lead to resistance from non-OPEC members, contributing to market volatility.

• How do geopolitical risks affect oil prices?

  Geopolitical risks, particularly in key oil-producing regions like the Middle East and Africa, can disrupt oil supply, leading to sharp fluctuations in oil prices. Tensions between countries, such as Iraq, Saudi Arabia, and Iran, or disruptions in critical shipping lanes, can significantly impact the global oil market.

• What role do refining margins play in the profitability of energy companies?

  Refining margins represent the difference between the cost of crude oil and the price refiners receive for the finished products. While refining margins have recently remained stable or slightly increased, companies like Santos and Woodside may still face profitability challenges if demand weakens or if they are unable to pass on costs to customers.

• How will the energy transition to renewables affect traditional oil and gas companies?

  As the global focus shifts to renewable energy, oil and gas companies face growing pressure from government policies such as carbon taxes and stricter emissions regulations. This transition could limit the future growth prospects of traditional energy companies, making their profitability more uncertain in the long term.