Crude Oil

Energy Spotlight: $110/bbl persists; record high refining margins hit Oz servos

Fri 20 May 22, 3:33pm (AEST)
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Key Points

  • Crude touched $115/bbl earlier this week as WTI and Brent hit parity, but momentum fell back to $110/bbl range
  • Stagnant Chinese lockdowns cause a stagnant price; International Energy Agency says global demand slowing
  • Despite IEA assessment, US Permian Basin output in June predicted to hit record high; OPEC boosts Iraqi output

The S&P/ASX 200 Energy Index is down -1.48% on Friday after another rattling week of ASX sell-offs, despite recovery across every other sector. Energy is the only sector in the red today in mid-late afternoon trade.

The XEJ made some gains throughout the week but was down on both Thursday and Friday.

However, the index is still having a better week than last: the XEJ is up 1.85% on a week by week basis, compared to -3.73% last week. 

Of course; that 1.85% still comes short of recovering last week’s losses. 

The XEJ over the last three months compared to the All Ords
The XEJ over the last three months compared to the All Ords

Price headwinds

  • Ongoing lockdowns in China remain the dominant factor influencing trader decisions, reports indicate Shanghai will commence a staged re-opening process starting on June 1.

  • The International Energy Agency this week reported what it perceives to be a slowing down in global oil demand in its latest Oil Market Report. Higher prices, the IEA predicts, are ultimately to blame.

  • Several EU member states have rejected any attempt to implement an EU-wide ban on Russian oil, leaving Germany the lonely contender in a race to limit all imports of Russian oil into the country. 

Price drivers

  • The Energy Information Administration (EIA, not to be confused with the IEA), reported crude reserve inventories 14% below the five year average volume. However, it’s worth noting the prior week saw an increase of 8MMbbl. 

It has been another fairly uninspiring week for oil price chart watchers with the $110/bbl quo remaining in place, at this stage, for the better part of a month. 

Consensus on a snapback in oil demand driven by a Chinese re-opening of major locked down cities has been rattled somewhat by IEA assessments oil demand will globally be subdued across second half FY22 as high prices scare away purchasers. 

Australian consumers might be curious as to why, despite relatively cheaper crude compared to other times this year, fuel prices have hit over $2/L in every major city this week. 

The answer? Refinery costs. JP Morgan analyst Phil Gresh this week noted refining margins have hit record highs as the costs of turning crude oil into vehicle fuel hits the wall of inflation.

Perhaps we shouldn’t have got rid of so many domestic refineries here at home. 

Looking at the US-based EIA, while it reported this week a slight decrease in crude inventories, it also released another interesting tidbit: oil output from the US Permian Basin is to hit a record high on 2022, along with associated emissions.

CO2 atmospheric concentrations are at all time highs; one can only think COP27 will have a lot to talk about. 

In the first exciting move the cartel has made this month, OPEC has also boosted Iraq's oil production quota this week; and Guyana is forecast to become one of the world's largest oil producing jurisdictions (but we already knew that.)

(Source: TradingView) A look at Brent's 1Y chart shows how the February invasion of Ukraine triggered a yo-yo price effect
(Source: TradingView) A look at Brent's 1Y chart shows how the February invasion of Ukraine triggered a yo-yo price effect

What to look out for next week 

In saying something that has become a bit of a catch phrase across May, crude continues to trade sideways as the market awaits a meaningful catalyst. 

The easily bored could be forgiven for losing interest in the oil market as the chaos that surrounded the commodity through 2021 and the first half of 2022 appears to be taking a well-deserved rest. 

On Saturday, Baker Hughes will release its total rig count data for May, which will give traders an idea of how many operations are active right now in the US. 

On Monday 23, China will release its business confidence data for May, which may give a preliminary idea of demand psychology heading into a reported early-June re-opening. 

Wednesday will be a big day for the US market, with EIA data on crude oil imports change, Cushing crude oil stocks change, and refinery crude run change data being released. 

Thursday sees South Korea make its interest rate hike decision which has implications for Asian demand, and on that same day, the US EIA releases its natural gas stocks change data for May. 

There also remains the question of when, exactly, Germany will start making a meaningful approach toward a Russian oil ban—assuming it does this at all. Whether momentum will water-down into a symbolic gesture, or carry though into an actual economy-altering policy, remains to be seen. 

Looking at the Australian majors:


Woodside Petroleum (ASX:WPL) is down -3.7% in the last hour of trade on Friday as the company confirms its merger with BHP, which also sees it pick up the latter’s liabilities and decommissioning costs across BHP’s energy portfolio. 

On a one-month scale, the price has dropped -12.55%. Last Friday, that figure was only -5.24%. 

YTD, performance sits at 31.24%. This time last week, that YTD figure was nearly 38.5%


Santos Limited (ASX:STO) is down -1.46% to $8.09 in the last hour of trade.

YTD performance sits at 28.21%; up from 26.7% this time last week—but one month performance is down -2.76%. 

Beach Energy 

Beach Energy (ASX:BPT) is down -2.27% in the last hour of trade, and down -0.46% this week.

YTD performance had slid downward to 28.37%, this time last week, that figure was at 30.36%. 

With all of that said, all three companies will shrug these losses off, if Morgan Stanley were right in saying last week we’ll see $130/bbl again before too long. 

Written By

Jonathon Davidson


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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