Energy Spotlight: CCP Congress, Oz windfall tax, UK fracking ban drama, Biden miffed—and COP27 inbound

A lot happened this week in governance around energy markets. Let’s start off with China’s 20th National Chinese Communist Party Congress. 

(And don’t forget: COP27 is next month.)

China

Xi Jinping said China will not amend its covid-zero policy, so megacity scale lockdowns are set to continue, hitting oil demand. China also has no plans to stop burning fossil fuels. 

Officials reiterated China’s aim to develop more oil and gas projects.

China then talked up its ambitions to develop clean energy. China and India have declined 2050 net zero targets; China adopted a 2060 target, India’s is 2070.

Australia

Thinktank Australia Institute went public with its calls for the Albanese Government to adopt a windfall tax. Similar calls were first being floated in August. 

Windfall gains (realised from higher commodity prices) for Australian energy companies, Australia Institute estimates would give the government an extra $20bn, at least.

United Kingdom

The Tory government successfully shut down a Labour motion seeking a vote on whether the UK should reinstate a fracking ban. 

For now, it looks like fracking is set to go ahead, but some ministers doubt it will ever make it past community consultation hurdles. 

Reluctant Tory members who voted on the fracking ban proposal claimed they were bullied by members of their own party, and in some cases, physically forced into rooms to vote. Tense energy at Westminster.

Oh, and Liz Truss has resigned. The fracking vote bullying allegations could have been what did it, as multiple Tory party members publicly called for her resignation in the hours after.

We’ll look at the energy proclivities of whoever has taken over by this time next week. 

EU 

The EU has proposed EUR40bn to mitigate energy cost shocks for households and businesses and is also eyeing a new gas futures benchmark to replace the Dutch TTF.

That process is like herding cats; we’ll revisit the situation next week. Progress won’t get too far ahead. 

US

Joe Biden lashed out at energy companies in a speech designed to settle energy commodity futures markets. The speech didn’t really work, and oil was on the way back up on Thursday afternoon. 

That upward pressure came even ahead of another reserve release of 15Mbbl, and as Biden called on US companies to pump more. Perhaps he did not need to: Texas’s Permian Basin is set to see its highest ever oil and gas output on record in November next month. 

OPEC spokespersons have also this week claimed OPEC’s supply cut is more likely to equal a reduction of 1Mbpd, instead of 2Mbpd. The market didn’t pay much attention to that, either. 

(Also: the US wants to use its weapons grade uranium for energy generation.)

Brent Crude has remained in the low-to-mid USD$90/bbl range this week (TradingEconomics)

Ok. So what about energy commodities? 

As of mid-afternoon AEST on Friday 7th October, weekly performance for commodities are as below:

• Brent Crude: UP 0.89% 

• WTI Crude: down -0.01%

• US natgas futures: down -17.34%

• EU natgas futures: down -17.33%

• UK natgas futures: down -20.39%

• Uranium: up 4.88% to US$52.6/lb

Gas trading Australia has not published October data for natgas spot prices yet, but likely remain within the A$6/GJ range.

Price headwinds

• Xi Jinping used the CCP 20th Congress to reaffirm megacity lockdowns

• Saudi watered down OPEC’s 2Mbbl-per-day supply cut to 1Mbbl

• EU, UK inflation back at 40 year highs, high storage levels are pushing down regional gas futures

• Key US Fed players this week suggested US interest may climb above 4.75%

• Many regions are reporting milder weather forecasts through the Northern Winter

Price drivers

• OPEC supply cut continues to upwardly influence trading behaviour

• Despite milder forecasts, traders keeping eye on heating and cooling demand

• China reiterated this week it will continue to develop oil and gas resources. Permian Output from the prolific US basin is set to hit a record high next month, indicating strong demand.

Looking at the volatility on the EU natural gas futures benchmark, the Dutch TTF, it's easy to see why EU lawmakers may want to just create a new benchmark altogether (TradingEconomics)

What to look out for next week 

Saturday 

• Baker Hughes rig count 

• European Central Bank President Lagarde speech

Wednesday 

• Australian inflation rate

• Bank of Canada interest rate decision (Canada is a major energy jurisdiction)

Thursday 

• US GDP Growth rate data 

• ECB Interest rate decision 

Oz majors 

Woodside (ASX:WDS) one week returns up 7.99% (strong earnings report)

Beach Energy (ASX:BPT) one week returns up 3.29%

Santos Limited (ASX:STO) one week returns up 0.94%