Energy Spotlight: OPEC labels oil sell-offs as driven by ‘fear,’ high gas prices remain the norm

Let us start with oil. 

Brent Crude fell from USD$99/bbl last Friday to a six month low of USD$92/bbl midweek, but has climbed back to USD$96/bbl on perceptions of tight oil supplies and forecasts of continued demand from OPEC in 2023.

Worth noting: OPEC Secretary General Haitham Al-Ghais this week accused oil traders of ‘fear,’ the emotion which he blamed for recent sell-offs in the oil price. 

One may be left to wonder what exactly isn’t fearful about a Chinese economic slowdown, now being intensified by unexpected intense weather with all the hallmarks of climate change behaviour. 

And now let’s turn to gas. 

For context: movements in the Brent Crude price over the last year (Source: TradingEconomics)

United States of America

North American natural gas futures are trading at prices close to a 14 year peak of US$9.75 per million British thermal units (MMBtu—or, for people who prefer common sense, a gigajoule.) 

The northern summer is increasing demand for home cooling and bullish sentiment is at the fore. Worth noting, the US exported its highest ever shipment of gas to Europe last week.  

United Kingdom

UK natural gas futures remain elevated with the benchmark climbing 13.5% over the last week. 

Unprecedented drought across Europe is leading to supply concerns as Germany’s Rhine river cannot be crossed by many ships right now, due to low water levels. Gazprom has also reduced gas exports through Nord Stream 1, further putting upward pressure on the price, and demand from the EU remains strong. 

Worth noting: the upcoming Northern Winter isn’t too far away now, and forecasts on conditions for winter will start to influence trading behaviour. 

European Union 

The Dutch TTF natural gas futures benchmark has risen 15% over the last week not too far off an all-time high hit in March 2022 following the invasion of Ukraine.

Heatwaves across Europe are pushing demand for home cooling to extreme levels in an already short market still impacted by fluctuations in Russia’s supply of gas to the region. Nord Stream 1 flowrate cuts led to a bullish jump in the benchmark. 

For context: the shape of US natural gas futures over the last year (TradingEconomics)

Price headwinds

• China’s economic quandaries are hurting demand as lockdowns remain in place, despite recent travel restriction lifts

• Bank of England’s recent forecast of late 2022 UK recession continue to dampen perceptions of oil demand, as does lingering US recession risk 

• High inflationary environments remain the status quo around the world

Price drivers

• Crude oil inventories were lower in the US this week

• An ongoing gas-based energy crisis continues to dominate Europe, and low supplies are now meeting high demand in heatwave conditions

• OPEC forecasts robust oil demand through 2023

What to look out for next week 

Saturday 

• Baker Hughes US rig count data

Tuesday

• Early EU consumer confidence data for August 

Wednesday 

• South Korea business confidence data for August 

• Weekly US crude oil stock change data 

• Energy Information Agency (US) weekly data drop

Thursday

• US GDP quarterly growth rate data