Energy

Energy Spotlight: OPEC cut fails to bump $90/bbl Brent, EU energy response consoles markets

Fri 09 Sep 22, 4:06pm (AEST)
An aerial view of an oil tanker
Source: Unsplash

Key Points

  • Brent Crude is trading below $90/bbl mid-afternoon Friday and world gas futures are still down compared to late August levels
  • Suppression of both commodities appear to defy macro trends—an OPEC supply cut for oil, and, Russia’s halting of NordStream 1 for gas
  • Ongoing lockdowns across Chinese megacities continue to weigh on market optimism, as do global demand forecast downgrades

A look at Oz majors

The S&P/ASX 200 Energy Index (aka XEJ) closes the week down -0.30%.

Last Friday, its price sat at $33.49. One week returns for Woodside investors are down -2.84%.

Its price hovers near where it was last Friday, at $7.94.

Its price is down from where it was last Friday, at $1.76.

Brent Crude

Let us start with oil. 

Good news for consumers and bad news for bulls this week as the price of Brent Crude has dropped once again below $90/bbl in mid-afternoon trades. 

The price of Brent has lowered even compared to January 2022, before the Russian invasion of Ukraine.

Brent crude prices fell -5.5% to US$87.7 a barrel, its lowest since January and -11.5% lower compared to pre-Russian invasion levels. 

A conflation of macro factors are at play. A non-exhaustive list includes:

  • Central banks worldwide will continue raising interest 

  • Beyond the noise, the US Fed will continue tightening 

  • The US is in a technical recession; UK set for the same

  • Business sentiment in the EU has plunged since July 

  • Need for higher unemployment to battle inflation is harming sentiment 

  • Chinese lockdowns continue to restrict megacities

A look at the Brent price over the last week (TradingEconomics)
A look at the Brent price over the last week (TradingEconomics)

Put all those things together, and you get one prevailing mood: demand for oil is set to lay low for a little bit. 

Natural Gas

Gas futures in the UK and EU, meanwhile, are also down (compared to late August levels) but for different reasons. 

In late August, Gazprom, which is a state-owned oil supermajor in Russia (and which also acted as a bank following the immediate collapse of the USSR) said it was going to greatly reduce all flows of gas to Germany through Nord Stream 1 for three days. 

Probably surprising nobody, this week, Gazprom then turned around and confirmed Nord Stream 1 would stay shut indefinitely. The separate Yamal pipeline, through which Russia likes to withdraw gas supplies at random, has also had its off days this week. 

You’d think gas benchmarks would be rocketing to new all time highs, but right now, they’re not—storage levels across Europe are widely reported as being higher than expected. 

In the UK, meanwhile, traders are likely banking on being able to access some of those European reserves, and newly appointed Prime Minister Liz Truss has kicked her tenure off with a GBP150bn package to combat inflation. 

Whether or not that package will actually work remains to be seen, as does whether or not sentiment in Europe will stay so sunny once winter hits. 

Likewise, US gas futures are down -8% compared to last week.

The price of US gas at Henry Hub over the last week (TradingEconomics)
The price of US gas at Henry Hub over the last week (TradingEconomics)

Price headwinds

  • The US is in a technical recession and Chinese megacities remain locked down

  • The US Fed has confirmed it will continue to hike rates for the foreseeable future

  • Worldwide, all other central banks are doing the same thing, culminating in the dampening of bullish sentiment for crude

  • For now, promising gas storage levels in the EU are keeping TTF gas prices down 

Price drivers

  • Gas supplies in the northern hemisphere will tighten ahead of winter

  • OPEC’s supply cut decision for oil may become more prominent after echoing into markets for a few weeks

  • Geopolitical volatility continues to boost gas futures in Western Europe, echoing into US and Asian markets

What to look out for next week 

Saturday 

  • Baker Hughes US rig count data

  • Russian inflation rate

Monday

  • UK GDP data 

  • Indian inflation rate 

  • US consumer inflation expectation data 

Tuesday 

  • US inflation rate 

  • Australian Westpac consumer confidence data 

  • German inflation rate

  • EU economic sentiment data 

Wednesday 

  • UK inflation rate 

Thursday 

  • Bank of England interest rate decision  

  • Australian consumer inflation expectations 

  • Australian unemployment rate 

  • EU wage growth data

Friday

  • EU inflation rate data for August 

  • Chinese industrial production data for August 

  • EU new car registrations for July 

 

Written By

Jonathon Davidson

Finance Writer

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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