Energy

Energy Spotlight: crude declines to $109, recession fears define world trade

Fri 24 Jun 22, 2:09pm (AEST)
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Key Points

  • Brent Crude is trading at $109 at lunchtime on Friday; US gas prices decline to $6.20
  • European gas benchmarks see similar falls, but still at record highs
  • ASX Energy Sector slammed this week on oil price declines, recession-inflation fears, low optimism for demand

The S&P/ASX 200 Energy Index is down -1.3% in early afternoon trades on Friday after another lacklustre week for energy stocks.  

Weekly performance has declined for the second in a row, sitting at -5.91%. Sell offs are not as bad as last week, when weekly performance reflected -10.63%. 

For those playing at home, the index has lost over 16% in the last fortnight as a high US inflation rate shock continues to echo, and countries around the world raise interest rates. 

Year to date performance for the XEJ has declined to 22.4%. 

Brent Crude prices over the last week (TradingEconomics)
Brent Crude prices over the last week (TradingEconomics)

Price headwinds

  • Continuing interest rate hikes around the world are putting investors on edge as inflation rates continue to rise

  • US Fed chairman Powell this week confirmed a US recession is a “possibility”

  • Ongoing lockdowns in major China cities continue to disrupt global demand, and trader sentiment 

Price drivers

  • OPEC+ notes underinvestment in oilfields is hampering planned production increases

  • Losses in supply from Russian sources continue to contribute to tight oil supplies

  • Despite bearish defining world trading behaviour, ongoing asset shutdowns continue to impact the gas and oil markets

  • The IEA last week reported 2023 oil demand is to hit record highs, even after a forecast downgrade 

While the ASX Energy Index has had a better week than last, it is another red week for the XEJ as bearish global sentiment continues to inform oil and gas trader decisions. 

Brent crude has fallen from $117 last Friday to $109 today. 

The energy sector has finished in the red nearly every trading day this week as the wind is taken out of energy stocks on the back of lower oil prices. 

The same can be seen on international gas markets - US and EU benchmarks have both fallen, though, all commodities remain at record highs relative to 2019. 

In the long-term, it’s worth noting Germany this week announced its plans to contest an EU ban on combustion engines by 2035. 

This came at the same time Germany conceded it would fire up mothballed coal plants in the region—something which is happening all over the world. 

Coal stocks in Australia have seen healthy activity this week as coal use is set to increase at home, too. 

It is possible a rejuvenation of enthusiasm for coal by world governments may be taking some wind out of hydrocarbon commodities. 

US Natural Gas prices over the last week (TradingEconomics)
US Natural Gas prices over the last week (TradingEconomics)

What to look out for next week 

On Tuesday, the US Conference Board releases US national consumer confidence for June. 

Wednesday will be a big day. The following data will be released: 

  • US API and EIA crude oil stock change data

  • US GDP growth data 

  • EU economic sentiment data 

  • EU consumer confidence data 

  • German inflation rate 

  • Korean consumer confidence data

  • Japanese consumer confidence data

On Thursday, the following data will be released: 

  • Korean business confidence for June 

  • Australian private sector credit data for May

  • UK GDP growth data

  • French inflation rate 

  • Canadian GDP growth data 

  • Indian government budget value data for May 

On Friday, the EU will release inflation data for June, and Australia will release its latest commodity prices data.

Written By

Jonathon Davidson

Journalist

Jonathon is a journalism graduate and avid market watcher with exposure to governance, NGO and mining environments. He was most recently hired as an oil and gas specialist for a trade publication.

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