Energy Spotlight: Goldman Sachs call $130/bbl by late 2022, world gas markets stay high

Brent Crude prices returned to USD$99/bbl this week after becoming subdued in week 31. 

The International Energy Agency has forecasted growth in oil demand this year through the southern summer and northern winter, and expects this to continue in 2023. 

OPEC, meanwhile, are less optimistic, and they reckon 2023 will have less oil demand driving markets than that anticipated by the IEA. Who is right? Time will tell. 

Time will also tell whether or not Goldman Sachs is right when it said this week it predicts oil to return to USD$130/bbl before December. 

China demand

This prediction assumes demand for aviation fuel in particular will grow in China over the coming weeks and months. 

While China’s covid lockdowns have crushed world demand (at the same time sentiment remains depressed in all major economies,) hotel quarantine requirements for international visitors were rolled back this week. 

Worth noting is that the lifting of Chinese lockdowns is what led to the original oil price volatility back in 2021, which has remained the status quo for over a year, now. 

Rollercoaster

Whether the Xinping government will soften its covid zero policy or not remains to be seen, but recent history tells us that once lockdowns end, whenever that may be, we’re likely going to be in for quite a rollercoaster ride on the oil markets. 

Also worth noting is that the EU will stop buying crude from Russia outright on December 5.

Speaking of Russia and rollercoaster rides: let’s look at gas markets.

Recent wrap-ups have described how Russia’s interference with European supply chains is leading to shocks across gas future benchmarks all around the world. 

That situation has not changed.

Worth highlighting, though: Russia has resumed gas flows to Latvia, but in what has become typical Gazprom fashion, not at the full rates once pumped there. 

The S&P/ASX 200 Energy Index is up 1.31% in early afternoon trade for Friday. One year returns on the XEJ are at 30%, up from 26% last Friday, as crude starts to creep higher. 

Price movements for the Dutch TTF natgas futures benchmark over the last week (TradingEconomics)

Price headwinds

• Despite a positive US inflation read, the Bank of England is expecting a recession

• Chinese lockdowns continue to remain in place

• Low demand dynamics are pushing prices lower and OPEC sees lower demand through 2023

Price drivers

• US sentiment is increasing and lower fuel prices means more drivers are filling up, which means more traders will likely re-enter oil markets

• International air travel to China has become easier this week as the country softens hotel quarantine requirements

• As for gas, lower supply and high demand ahead of the Northern Winter continues to rally EU gas futures

What to look out for next week 

Saturday 

• Baker Hughes US rig count data

Monday

• Chinese industrial production data for July

Tuesday

• Canadian inflation rate (Canada is an oft overlooked energy giant)

• India import-export data for July 

Wednesday 

• UK inflation rate 

• EU GDP growth rate for Q2 (prelim)

• Weekly US crude oil stock change data 

• Energy Information Agency (US) weekly data drop

Thursday 

• EU inflation rate 

• US Philadelphia Fed business sentiment data 

Friday

• UK consumer confidence data 

• Japanese inflation rate (will have implications for the JKM spot price)

The shape of Brent Crude charts over the last week (TradingEconomics)