Energy Spotlight: US inflation triggers another global sell-off; energy commodities hit

This week’s US inflation read has startled world markets once again into sell-off territory, and energy commodities did not escape the glut. Brent crude is still at $91/bbl like it was last Friday, and European energy commodities also saw declines on Friday. Though, it’s worth noting that compared to this time last year, EU and UK gas futures are still at record highs.

High inflation means more interest rates, and fears that continued interest rate hikes may trigger a recession continue to dampen sentiment wholemeal. Recession is just one of many issues investors need to cope with right now. 

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

Put all those things together, and you get one prevailing mood: demand for oil is set to lay low for a little bit. Due to geopolitics, natural gas is expected to stay around where it is right now for the rest of the year. 

Many traders are banking on the price of gas going up during the Northern Winter like it usually does, but this time, vastly amplified due to supply shortages from Russia and intense global competition to secure natural gas. 

Europe’s scramble for gas is affecting the price of gas in the US; both are affecting the price of gas in Asia, which then has knock-on effects for the price of gas in Australia. 

Australian operators exporting gas, however, are probably over the moon. 

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

Price drivers

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

• 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

Wednesday 

• Weekly US EIA fuel stocks data dump

Thursday 

• US Fed interest rate decision

• Euro central bank council meeting

Oz majors 

Woodside (ASX:WDS) down -3.97% to $32.39 

Beach Energy (ASX:BPT) down -4.11% to $1.63 

Santos Limited (ASX:STO) down -3.02% to $7.72