US oil prices hit 7yr high; Z Energy agrees Ampol takeover offer

Energy market update

Oil prices continue to rise with the US crude benchmark back at 7-year highs.

New Zealand fuel retailer Z Energy unanimously agrees NZ$2 billion takeover offer from Ampol.

Energy market update

• The global energy crisis is showing no signs of abating with the US crude oil price touching US$80 a barrel in Asian trade this morning. Last week, the US Nymex price lifted by US$3.47 or 4.6 per cent to US$79.35 a barrel, the highest price since October 31, 2014. The US benchmark posted a seventh straight weekly gain, the longest stretch of advances since December.

• And the Brent crude price gained US$3.11 or 3.9 per cent to US$82.39 a barrel. Earlier in the week, the global benchmark hit a 3-year high of US$83.47 a barrel. A weakening of the US dollar on the back of disappointing US jobs data on Friday further boosted the appeal of crude oil priced in the currency.

• So what has driven crude oil prices to multi-year highs? Global oil demand is growing as economic activity picks up from pandemic lows, exposing global businesses and households to alarmingly low supplies of natural gas as northern hemisphere countries head into winter. In Europe, the benchmark Dutch TFF hub natural gas price soared to record highs last week as demand for heating fuels surged. The lift in gas prices comes at a time when coal prices are also surging, accelerating demand for crude oil, diesel and kerosene as ‘cheaper’ fuel sources to generate power.

• But it’s not only European countries suffering from persistent fuel shortages and electricity blackouts. China and India have both been hit by electricity outages with insufficient coal stockpiles shutting factories and schools. Refinitiv reports that that half of India’s coal-fired power plants have less than three days’ worth of fuel stocks. And on Friday, Beijing ordered its state-owned enterprises to secure energy supplies ‘at all costs’ with Chinese oil futures surging 9.5 per cent as markets re-commenced trading after holidays.

• The gravity of the situation isn’t lost on global leaders, under pressure to tackle the challenge of climate change at talks in Glasgow in November. The climate summit will take place at a time when surging fuel costs are pressuring the balance sheets of businesses and the hip pockets of consumers. With US gasoline futures hitting 7-year highs of US$2.37/gallon on Friday, there are mounting calls for the US government to release oil from the strategic petroleum reserves (SPR) to address tight energy supply conditions. While the Biden Administration has not tapped the SPR so far, the US has used its strategic reserves historically after hurricanes and other major supply disruptions.

• Global oil supplies remain constrained due to the slow ramp up of crude production from the Organisation of the Petroleum Exporting Countries and allied producers (OPEC+), despite the energy crunch and lift in demand. In fact, Saudi Aramco said a global natural gas shortage was boosting oil demand for power generation and heating. All eyes will be on the OPEC monthly report this week as investors seek clues on the outlook for the oil industry.

• Surging energy prices are adding to investor concerns over building inflationary pressures or even potential stagflation. Cost pressures will be in focus this week with closely followed measures of consumer and producer prices released in both the US and China.

• The reports coincide with the issuance of the minutes from the September meeting of the US Federal Reserve, which could signal a possible reduction or tapering of its monthly asset purchases as soon as next month.

• In ASX energy company news, the focus is on the share prices of both Ampol and Z Energy today after the Board of New Zealand’s largest fuel retailer unanimously backed Ampol’s NZ$2 billion takeover offer.

• Overseas listed energy companies will likely to continue to benefit from rising energy prices, with share prices potentially re-rating amid tight power and commodity supplies.

• Investors are starting to take notice of Russia, with the world’s biggest energy exporter emerging as the supply ‘kingmaker’ in challenged natural gas markets. While the country has already begun lifting interest rates to tame inflation, investors have shrugged this off. In fact, Bloomberg data shows that twelve-month earnings forecasts for Moscow-listed stocks have jumped around 14 per cent since the second half of the year, bolstered by the prospect of rising energy revenues.

Weekly oil market data

• Last week, the US Nymex price lifted by US$3.47 or 4.6 per cent to US$79.35 a barrel, the highest price since October 31, 2014. And the Brent crude price gained US$3.11 or 3.9 per cent to US$82.39 a barrel. Earlier in the week, the global benchmark hit a 3-year high of US$83.47 a barrel.

• The benchmark Singapore gasoline price rose by US$7.09 or 8.1 per cent to near 7-year highs of US$94.78 a barrel last week. In Aussie dollar terms, the Singapore gasoline price lifted $8.27 or 6.8 per cent to a 3-year high of $129.87 a barrel or 81.68 cents a litre.

• The national average wholesale (TGP) petrol price rose by 3.3 cents last week to 145.3 cents per litre. Today the TGP price sits at a 3-year high of 147.2 cents per litre.

• The national average unleaded pump price rose by 1.7 cents last week to 153.8 cents a litre.

• MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 161.2c/l; Melbourne 153.7c/l; Brisbane 150.5c/l; Adelaide 159.0c/l; Perth 159.3c/l; Hobart 162.0c/l; Darwin 156.0c/l and Canberra 161.3c/l.

Published by Ryan Felsman, Senior Economist, CommSec