Energy Spotlight: Brent Crude over $115/bbl, Energy leads Friday ASX upswing

The S&P/ASX 200 Energy Index is up 2.17% mid-afternoon Friday after a week of small losses, leaving the one-week performance for the index at 0.39% in the last two hours of trade. 

Nine out of eleven ASX sectors are in the green today with Energy leading the pack driven by Crude prices heading back toward $120/bbl. 

Price headwinds

• While Shanghai begins opening back up, high-risk areas of Beijing have been subject to full lockdown as the Chinese capital sees yet another outbreak of covid.

• A story carried by Reuters noted global diesel shortages; its analysis predicts the lack of supply will ultimately accentuate a global economic slowdown first flagged in a prior IMF World Economic Outlook downgrade earlier this year.

• Traders are still waiting for the breakout of catalysts as continued fears about a possible US recession and downward revisions on global economic activity continue to promote hesitant behaviour. 

Price drivers

• The EU appears set to reach a compromise with Hungary by the end of May towards the imposition of a ban on Russian oil imports in the union, which will likely lead to a boost in the price of major oil benchmarks.

• The US EIA reported larger-than-expected crude inventory drawdowns this week, prompting traders to bet on upward price support given perceptions of a lack of global supply. 

(Source: TradingEconomics) The last week of Brent Crude price charts

After a few weeks of hovering stubbornly around $110/bbl, the price of Crude Oil (Brent) has this week begun to approach $120/bbl again as reports of worldwide constrained supply coincide with the opening of Shanghai. 

Of course, now Beijing is being put back into lockdown in high-risk areas. 

The EU appears set to make a serious move on a Russian oil ban in June with the European Council currently negotiating with Hungary, which has delayed the process of instituting an embargo on Russian energy products due to its reliance on them. 

The EC says it expects to make an agreement with Hungary towards a Russian oil ban by May 30. What exactly that will look like, we still don’t know. 

Australian consumers have continued to grit their teeth through another week of high fuel prices as refinery margins remain raised above usual levels, and this week, Australia’s first gas retailer went bankrupt under the pressure of current gas prices. 

Oh, and Australian electricity costs are going to rise up to 18% later this year, too. 

The US-based EIA again this week reported a larger-than-expected drawdown of US crude oil inventories, further adding to perceptions of global supply constraint and influencing trader behaviour. 

OPEC+ is expected to stick to its production deal from 2021 which will see 432,000 barrels per day added to output, as the cartel prepares to meet in early June. 

What to look out for next week 

On Monday, the EU will release its consumer confidence final data for May, as well as economic, industrial and services sentiment results. 

Germany is also to release its inflation rate month-on-month and year-on-year for May 2022; should the EU have reached a position on a Russian oil ban by that time, the datasets may pose implications for oil and gas traders, consumers, and producers. 

Australia’s GDP growth rate for Q1 2022 year-on-year is to be published on Wednesday June 1 and Australian commodity prices for May YoY will also be disseminated. 

Also on Wednesday, the Bank of Canada will publish its interest rate decision. Canada has grown quietly into an energy major in the last few years, and the move will likely influence the economics of the country’s energy market. 

On Thursday, Russia publishes its corporate profit results for March. Those curious to see how Russian energy stocks are faring will likely be keen to have a look. 

Reports from earlier this week stated there are currently record numbers of Russian energy cargoes drifting at sea as producers continue looking for buyers. 

Looking at the Australian majors:

The last three months of Woodside's price performance underscores the supermajor's weighting on the XIJ Energy Index

Woodside 

Woodside Petroleum (ASX:WDS) is up 4.09% on the back of higher oil and gas prices.  

YTD performance has recovered its stature from a fortnight ago, returning to 38%. 

If the company’s ticker looks different than usual: you’re right. Woodside swapped from WPL to WDS this week.

Santos 

Santos Limited (ASX:STO) is up 1.6% to $8.28.

YTD performance sits at +31%; YoY growth is at 23%.

Beach Energy 

Beach Energy (ASX:BPT) is up 3.9% to $1.64. 

YTD performance is up from last week’s 28.37% to 30% today.