Energy Spotlight: IEA calls record 2023 oil demand as crude drops

The S&P/ASX 200 Energy Index is down -2.6% in mid-afternoon trades on Friday after a rough week for Australian (and world) markets. 

The big takeaway: weekly performance for the ASX Energy Index is down -10.63%. 

For comparison, performance for the ASX 200 index is down -8.19% for the week.

Year-to-date (YTD) however, the energy index is still up 26.72%. 

Price headwinds

• Last Friday, the US revealed an inflation rate of 8.6%. Intense sell offs across world markets defined the landscape this week.

• Bearish sentiment was intensified by the Fed’s rate hike of 75bps, followed by the Bank of England. More are to follow in the coming months.

• Some 2.5m people in Shanghai’s Minhang District are back under lockdown as China continues to grapple with covid, Beijing is also affected to a lesser extent. 

Price drivers

• The International Energy Agency (IEA) released its World Oil Outlook report this week, forecasting record high oil demand in 2023.

• OPEC this week noted tight oil markets and high refining margins are leading to an uptick in oil demand.

• Gas fell from its highs earlier this week in the US but the ongoing impact of the Freeport LNG fire in Texas has rejuvenated bullish sentiment.

• Sanctions on Russia continue to affect the global supply pool of both oil and gas broadly. Shutdowns in Libya do the same. 

A look at the one-week chart for Brent Crude (TradingEconomics)

Intense-sell offs driven by US inflation defined world markets this week and culminated in the Brent Crude price receding to $117/bbl from the $120/bbl range.

As of Friday afternoon, Brent is just above $119/bbl.

Not helping the situation (for bullish oil traders) was this week’s Fed interest rate rise, and another from the Bank of England. 

Ongoing lockdowns in Shanghai see some 2.5m people strictly affected and partial lockdowns in Beijing continue to affect world demand expectations. 

The IEA this week noted China’s oil imports are expected to fall as a result, though the agency expects China to lead an uptick in demand through 2023. 

That demand will help push global demand for oil through next year to record highs of 101.6m barrels per day. OPEC expects this to equal a rise of 2mbpd—1mbpd less than forecasted in 2022.

US gas prices fell in turn this week along with everything else, but ongoing sanctions on Russia and the unplanned shutdown of the Texas LNG Freeport facility are rejuvenating bullish sentiment. 

And don’t forget the offshore Gulf of Mexico is going into hurricane season with the US NOAA forecasting a worse season than last year, when Hurricane Ida knocked around world energy markets. 

What to look out for next week 

As usual, Baker Hughes will release its oil rig count for the US on Saturday. 

On Monday, the RBA’s Lowe will deliver a speech in Australia which will be closely watched by investors in the region. 

On Tuesday, Lowe is set to deliver another speech preceding the RBA’s latest meeting minutes. 

On Wednesday, the UK will release its latest inflation figures. 

Also on Wednesday, South Africa and Canada will do the same, while the EU will release June consumer confidence data. 

On Thursday, the American Petroleum Institute releases crude oil stock change data.

Also on Thursday, the European Central Bank conducts a general council meeting while France is to release June business confidence data. 

The US Energy Information Agency also releases crude oil import change data for June. 

On Friday, the European Council conducts a meeting and Russia releases industrial production data. 

Woodside 

Woodside Petroleum (ASX:WDS) is down -1.65% heading into the last hour of trade. 

One week performance sits at -10.51% as sell-offs and weaker oil prices hit the southern hemisphere’s second largest energy supermajor. 

Santos 

Santos Limited (ASX:STO) is down -3.18% as the same trends hit the Australian heavyweight. 

One week performance is down -10.33%; YTD performance is at 23.06%.

Beach Energy 

And Beach Energy (ASX:BPT) is down -2.92%.

One week performance down -11.94%; YTD performance up 31.75%.

Three month performance for the XEJ compared to the ASX200 (XJO)