Energy Spotlight: Brent stays around $100/bbl but Climate Change, Russia haunt gas prices

Brent Crude oil had another fairly tame week this week hovering around the $100/bbl range, but the real fireworks came from gas markets, where Russia’s repairs on Nord Stream 1 ratcheted up the tension into bullish sentiment. 

The S&P/ASX 200 Energy Index is down -0.94% in mid afternoon trades on Friday but is up 1.70% over the week.

Price headwinds

• As for Crude, sentiment overall is likely to remain subdued through July with the US Fed tipped to increase rates by 75bps this month and US demand weaker

• Inflation data around the world is continuing to edge higher upwards with varying degrees of severity

• Recession fears and Chinese lockdowns haven’t gone anywhere  

• As for gas, Russia’s commencement of flows through Nord Stream 1 saw gas prices ease slightly, as did cooler weather forecasts 

Price drivers

• Regarding gas, a weekend heatwave is predicted for the US, and despite tamer forecasts, climate change is being felt in summer across Europe, meaning more gas used for cooling

• Ongoing concerns about Russian geopolitical leverage over Europe through its dominance in gas market are keeping early week climbs buoyant

• Oil isn’t free from geopolitics either, and, perceptions of tight supplies continue to inform trading behaviour 

UK Gas futures over the last week (TradingEconomics)

Brent Crude didn’t do much this week, but gas sure did. 

Russia has now completed repairs on its Nord Stream 1 pipeline, and gas flows have resumed to Europe. 

But earlier this week they were briefly shut off, which caused everyone to wonder whether scheduled repairs were a pretext for a larger hostile supply withdrawal. 

Interestingly, the Dutch TTF gas benchmark did not react as violently as the UK benchmark did. 

Case in point, UK natural gas futures are up 25% over the last week. 

But Russia isn’t the whole story, here. There is also the fact the outskirts of London are on fire. 

This is due to a record breaking summer hitting the UK which any reasonable person can clearly read between the lines on. Hundreds all across Europe have died of heat stroke.

Unfortunately: no, that doesn’t usually happen. 

What that means is a higher demand for gas, as electrical grids struggle to provide enough power to keep millions of air conditioners working (just so we’re all on the same page, gas-to-power generation is huge.) 

What to look out for next week 

Saturday

• Baker Hughes US rig count data

Wednesday 

• Australian inflation rate 

• American Petroleum Institute crude oil stock data 

• US Energy Information refinery activity data

Thursday 

• US Fed interest rate decision

• EU Economic sentiment data for July 

• German inflation rate 

Brent Crude over the last week (TradingEconomics)