Energy Spotlight: Brent drops firmly below $100/bbl but gas markets remain heightened

On the back of weak economic data from China last week and ongoing inflationary environments in all major world economies (and minor for that matter,) crude oil traders have reeled in enthusiasm for the product, with Brent prices firmly falling below $95/bbl. 

Gas futures, however, remain up 249% year on year (YoY) in the UK, and, 364% higher YoY in the EU. They continue to increase in Australia, too, though not as dramatically. 

US gas futures still remain high, but subdued somewhat as cooler weather forecasts for the summer season came to the fore. Also worth noting is that, contrary to the NOAA's earlier forecasts (which I reported on as gospel,) the hurricane season appears it might not be as bad as predicted. Of course, the weather is proving to be impulsive, lately.

Speaking of impulsive weather, it's worth highlighting the climate legislation Albanese’s Labor government passed here at home this week pushing up Australia’s net zero targets.

Labor: Nothing to see here 

The big takeaway: don't worry. The Labor government has refused to ban oil and gas projects, and with most carbon reduction strategies artfully placed into tax and offset mechanisms, it’s likely the laws won’t have any strong impact on the operations of the energy sector. 

It’s certainly far from Gillard’s carbon tax, the only policy mechanism ever introduced in Australia’s history that actually led to a direct reduction in greenhouse gas emissions. 

Given the world in its current state, it’s not hard to see how now might not be the time for that. The next El Niño could change that, but, that’s a different story. 

Oh, also: the IEA’s next Oil Market Report drops this coming Thursday, as does OPEC’s monthly oil report. 

The S&P/ASX 200 Energy Index is down -1.87% heading into the last leg of trade for Friday.

One year returns on the XEJ are at 26%, down from 30% last week, with cheaper crude softening somewhat bullish sentiment. 

The shape of brent crude charts over the last week (TradingEconomics)

Price headwinds

• Global demand forecasts remain weaker than at the start of the year as overhead macro trends remain stubbornly in place

• Chinese lockdowns are continuing, and demand for gasoline in the US has taken a hit

• Coal continues to act as a surprise guest in the 2022 energy markets, likely drawing away traders from hydrocarbon futures as the black rock experiences something of a revival moment

Price drivers

• Gas futures, as has been the case for the last few weeks, remain heightened as Russia continues to leave Europe guessing as to supply. Worth keeping in mind: the northern winter isn’t far away

• Oil is down in terms of price and also supply (though, this depends on demand.) OPEC met this week and confirmed a smaller output for next month than previously indicated

• While not necessarily a price driver, it’s worth noting global refinery capacity is expected to hit an all time high this year

US natural gas futures over the last week (TradingEconomics)

What to look out for next week 

Saturday 

• Baker Hughes US rig count data

Sunday

• Annual Chinese import and export data

Tuesday

• Australian consumer confidence change (Westpac) 

• NAB business confidence 

• US business optimism index 

Wednesday 

• Chinese inflation rate 

• US inflation rate

• Weekly US crude oil stock change data 

• German inflation rate 

• Energy Information Agency (US) weekly data drop

Thursday 

• Russian inflation rate 

• Australian consumer inflation expectations 

• IEA Oil Market Report 

• OPEC monthly report 

Friday 

• UK monthly GDP data 

• French inflation rate 

• Yearly US export and import prices for July