Energy’s Winter Of Discontent?
‘’Now is the winter of our discontent’’ is the famous opening line of Richard III, a play by William Shakespeare. But is this Energy's winter of discontent? Today, we’ll assess the outlook and give you the lowdown on market events this week.
Crisis looming?
Some would say we’re already there. Worries over gas and oil supplies following Russia’s invasion of Ukraine in February have been a core theme of 2022’s story so far and that doesn’t look like changing in the final throes of the year.
Energy bills have been rising for households across Europe following the tight restrictions placed on trading with Russia — the main supplier of gas to the sub-continent.
That has had a major impact on the cost of living, as electricity bills fly up across Europe. Here’s just a snapshot — and those lines have only gone in one direction since August.
Source: Statista
Oil
Oil prices remained relatively stable last week despite fairly bearish headlines bouncing around, for example, the US’ decision to release 15 million barrels from the Strategic Petroleum Reserve (SPR).
This comes against the backdrop of underperforming domestic production in the US and the decision by OPEC+ members to cut production by 2 million barrels per day (bpd) — equivalent to 2% of global production.
The extra 15 million US barrels add to the 180 million barrels the country has already released from its stockpile this year. The SPR is now at its lowest level since 1984. With the mid-term elections coming, there won’t be much of an opportunity to release more, even if the country needs it. Not great.
Elsewhere, things aren’t looking too hot either. Barclays just cut its Brent oil price forecasts for this and next year, citing risks to demand from COVID-19 making a bounce back in China and the general global slowdown.
Source: FT
The bank slashed its 2022 price forecast by $3 per barrel to $100 per barrel, and its 2023 outlook, by $5 to $98.
This all points to a growing crisis, translating to market prices and traders should be wary.
Gas
It looks like traders are already planning for a global slowdown, as contrary to oil , natural gas prices begin to slide.
Another thing affecting this price is the weather. Despite the situation in Europe, demand for heating has so far been lower this year than in previous years, as we’ve enjoyed a warmer autumn. As a result, EU gas storage is still 92% full.
Source: FT
However, as the weather begins to turn colder, so too will the above chart. Those stocks will start to dwindle and the lack of supply from Russia combined with increased demand will potentially mean that prices could skyrocket.
Gas looks like it’s going to be highly volatile in the coming months as the battle royale between supply and demand really starts to kick off.
Traders need to watch those gas supplies and monitor any news related to the impending recession. Those things will play a big part in gas prices this winter.
Thoughts?
How are you feeling about the current state of oil and gas prices? Do you see it as a key opportunity? Let us know at @_contentworks; and please start following us while you’re there!
Top trading events week commencing 24.10.22
There’s a fair bit going on this week, here’s when and where you need to tune in.
Monday
● CNY — GDP Growth Rate YoY (Q3)
Tuesday
● USD — CB Consumer Confidence (OCT)
Wednesday
● AUD — Inflation Rate YoY (Q3)
● CAD — BoC Interest Rate Decision
Thursday
● EUR — ECB Interest Rate Decision, ECB Press Conference
● USD — Durable Goods Orders MoM (SEP); GDP Growth Rate QoQ Adv (Q3)
Friday
● JPY — BoJ Interest Rate Decision; BoJ Quarterly Outlook Report
● USD — Core PCE Price Index YoY (SEP); PCE Price Index YoY (SEP); Michigan Consumer Sentiment Final (OCT)
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Speak soon,
The Contentworks team
