European Natural Gas Prices Are On The Rise

1. European Natural Gas Prices Start to Climb

- Bottoming out in early June, European spot natural gas prices have been on the rise ever since and are currently flirting with the €40 per MWh threshold amid Norwegian supply disruptions.

- Even though Norway’s Hammerfest LNG export terminal has solved its leakage issues and is set to resume loadings this weekend, maintenance at gas processing plants in Nyhamna and Kollsnes is keeping gas flows capped.

- Above-normal temperatures are expected in most of Northwest Europe through the upcoming month, with daily peaks well above 30° C (90° F), which should also boost the continent’s cooling needs.

- Cooling down the bullish summer sentiment, Goldman Sachs said weaker demand and available LNG volumes will mitigate the impact of lower Norwegian supply and warm weather, sending TTF prices sideways.

2. Iraqi Compliance with OPEC+ Cuts Has a Distinct Kurdish Flavour

- As oil production from Iraqi Kurdistan is still yet to see any resumption, federal authorities in Baghdad continue to play hardball with Erbil, having passed a new 2023-2025 budget this week.

- The new budget mandates Kurdistan to hand over 400,000 b/d of its oil production to state oil marketer SOMO, in return for its allocated share of 12.6% of federal funding.

- As Iraq has agreed to a voluntary OPEC+ production cut of 211,000 b/d, a resumption of Kurdish production to pre-February levels would place the country’s overall output above its 4.21 million b/d quota.

- Turkish and Iraqi officials are set to meet next Monday to discuss ways that Turkey could pay back the $1.5 billion in damages as adjudicated by the ICC, but progress is expected to be very slow.

3. UK Windfall Tax Reversal Was Too Little Too Late

- The UK government has amended its windfall tax mechanism by stipulating that oil producers should pay “only” 40% of tax when oil prices fall to or below $71.40 per barrel and gas prices fall below £0.54 per therm, as opposed to the 75% tax rate currently.

- Despite the change, UK North Sea producers say it is coming too late as Harbour Energy and Apache are scaling down their presence in the region and upstream expenditures are set for a string of at least 5 year-on-year declines in the UKCS.

- Ironically, even the government’s own forecast didn't expect the price floor mechanism to be triggered before the windfall tax’s end in March 2028.

- Great Britain used to produce more than 4.4 mboed in the early 2000s, but its current output is a mere third of that and the decline is poised to continue to less than 200,000 boed by 2050.

4. Asia Eyes Battery Storage Leadership Amidst Capacity Build-Out

- Following strong growth in battery storage installations last year – up by 43 GWh globally or 60% year-on-year – Rystad Energy expects a surge in battery energy storage systems (BESS) by 2030.

- Annual BESS installations should surpass 400 GWh if energy policies remain as they are now, correlating to capacity additions of about 110 GW on a power basis.

- The IRA will boost the United States’ claim for a rapid expansion in renewables, adding more than 20 GW capacity compared to estimates before the passing of the Act, taking US battery capacity by 2030 to 130 GW.

- The main thrust of battery storage growth – some 60% of all increments by 2030 - will nevertheless come from Asia and China specifically, as Beijing is committed to peaking its emissions by 2030.

5. Buffett's Habit Of Buying Oxy Below $60 Per Share

- For the past year, US business magnate Warren Buffett has been buying shares of oil producer Occidental Petroleum every time the stock fell under $60.

- By now, Buffett’s Berkshire Hathaway is the largest stockholder in Occidental, controlling some 222 million shares, equivalent to 25% of the company,

- The so-called Buffett effect has tempered the impact of stock swings on Oxy shares, bringing it closer to the likes of ExxonMobil or Chevron, as the market anticipates Berkshire purchases after every drop.

- Unsurprisingly, Occidental Petroleum has become the most-purchased oil stock by hedge funds in Q1 2023 and there could be more as US regulators allow Buffett to own up to 50% of the stock.

6. Third Batch of Chinese Import Quotas to Boost Buying

- China’s Ministry of Commerce has granted the third batch of import quotas for the country’s 33 independent refiners, amounting to 62.28 million tonnes or 455 million barrels.

- The issuance of quotas is offering immediate relief to Shandong refiners that have mostly run out of previous allocations and were forced to buy high-sulfur fuel oil to refine at least something.

- The latest award takes the total volume of 2023 quotas to 1.42 billion barrels, a 17% increase year-on-year, and should stimulate increased buying by refiners in Shandong and elsewhere.

- Private giants Rongsheng Petrochemical, Shenghong Petrochemical, and Hengli Petrochemical saw the biggest allocated quotas in the 3rd batch, landing 20, 8, and 3 million tonnes, respectively.

7. Gold Outlook Worsened by Fed Decisions

- Gold has been decreasing for five consecutive days, its worst losing streak in four months, as the bullion has been hit by the re-emerging prospect of more hikes from the Federal Reserve.

- The US Fed signaled it would not increase interest rates now, but 9 out of 18 officials expect them to be hiked by another half of a percentage point by the end of 2023, beyond the current 5.00-5.25% range.

- Slackening demand for gold in India, the world’s second-largest importer that has been impacted by a weak rupee and higher rates of recycling in the country, has also been adding to the bullion’s downward pressures.

- Moving into Friday trading, however, gold has found support following a plunge to $1,928 per ounce, rebounding to its more natural $1,950-1,960/oz range.