Soaring natural gas and oil prices push up energy shares
Soaring natural gas and oil prices push up energy shares
Update of the energy market; inflation gauge
The price of oil continues to rise with Brent crude returning near 3 year highs.
Prices for natural gas (delivered to Asia) rose 86% in September.
The monthly inflation indicator rose 0.3 percent in September to be up 2.7 percent on the year.
Energy market update
• Regular readers know that we provide an update on the oil market every Monday. Oil prices have risen over the past month and this has been reflected in rising stock prices in the energy sector. In fact, the energy sector rose 16.4 percent in September to reach 8-month highs.
• Oil demand rises as more economies reopen after Covid. At the same time, oil production (supply) has been disrupted by the Covid as well as by weather events such as hurricanes. OPEC + oil producers meet later today and analysts expect producers to add just 400,000 barrels per day in additional production in November. As a result, oil prices are expected to remain high, with a number of experts swinging prices up to US $ 90 per barrel.
• In September, crude oil increased by almost 11%. But that’s not the only energy price to skyrocket over the past month. Prices for natural gas (LNG in Asia) climbed 86 percent in September, and thermal coal prices also rose nearly 31 percent. (In particular, coking coal prices also rose 29 percent during the month while iron ore fell 23 percent).
• ABC commodity strategist Vivek Dhar noted that spot prices for LNG delivered to North Asia have risen due to higher demand “as LNG importers seek to secure enough cargoes to winter to come ”.
• “Competition for LNG cargoes is also increasing due to gas shortages in Europe. European gas storage levels are around about 75% of capacity, well below the five-year average of around 90% for this time of year. The gas shortage in Europe reflects reduced imports from Norway and Russia, as well as lower domestic gas production. Rising gas prices in Europe prompted spot prices for LNG in North Asia to rise. “
• Vivek notes that demand from Central and South America has also constrained LNG markets. “Global LNG supply issues have also exacerbated the tightening of LNG spot markets, despite higher LNG exports compared to last year and 2019.”
• The surge in gas prices in Europe is now known as the “European electricity crisis”. While demand for gas is on the rise, the situation is exacerbated by the fact that power producers are moving away from coal and nuclear power, while the supply of some forms of renewable energy like wind power is also limited. It is estimated that gas accounts for around a fifth of electricity consumption in Europe and around 45% of the energy used to heat European homes.
• And this is also referred to as an “energy crisis” or “energy crisis” in China, with Bloomberg reporting that Chinese Vice Premier Han Zheng “has ordered the country’s major state-owned energy companies – from coal to electricity and oil – to guarantee the supply of this winter at all costs ”. In China, access to thermal coal supplies is the biggest concern.
• But it is not only the prices of gas, or more generally of raw materials, which increase, the prices increase for a panoply of goods and services. People just come out of lockdown and want to travel and spend, but lockouts have restricted the amount of goods in the market. In the gas market, less personnel on board means less maintenance.
• Central banks believe that price increases are only temporary or transient, but they need to ensure that higher price increases do not last longer. The broader issues are therefore inflation, rising long-term interest rates and decisions by central banks about whether the time is right to end the stimulus.
Weekly oil market data
• During the week, Brent rose for the fourth week in a row, up US $ 1.19 or 1.5% to US $ 79.28 per barrel. Nymex rose for the sixth week in a row, up US $ 1.90 or 2.6% to US $ 75.88 per barrel.
• The benchmark gasoline price in Singapore rose 68 cents US or 0.8 percent to a three-year high of US $ 87.60 per barrel last week. In Australian dollars, gasoline prices in Singapore rose $ 2.37 or 2% to a 3-year high at $ 121.61 per barrel or 76.48 cents per liter.
• The national average wholesale price of gasoline (TGP) increased 2.5 cents last week to 142.0 cents per liter. Today, the TGP price sits at a 3-year high of 144.2 cents per liter.
• The national average price of unleaded at the pump fell 3.3 cents last week to 152.1 cents per liter.
• MotorMouth today records the following average retail prices for unleaded gasoline in capital cities: Sydney 151.0 c / l; Melbourne 151.2 c / l; Brisbane 151.4 c / l; Adelaide 140.0c / l; Perth 143.7 c / l; Hobart 159.9c / l; Darwin 151.9c / l and Canberra 160.1c / l.
Economic data of the day: monthly inflation indicator
• According to the Melbourne Institute, headline inflation rose 0.3 percent in September, up 2.7 percent for the year. The truncated average measure rose 0.4% during the month to be up 2.6% on the year.
• Since June, the monthly average overall rate has hovered around 0.2-0.3 per cent per month or around 2.5-3.0 per cent per year. And the annual growth of the truncated average fell from 1.8% to 2.6%.
• The Reserve Bank would be happy to see inflation rise to the target area of 2-3 percent, but would also like to see higher wages in response to a tightening labor market.
• However, it will take NSW, Victoria and ACT out of blockages before clearer readings are possible in the labor market.
Posted by Craig James, Chief Economist, CommSec