Uncertainty in global equity markets causes lack of direction in energy markets.

Uncertainty in global equity markets causes lack of direction in energy markets.

In the past fortnight global financial markets have been in disarray over US debt and the big ‘will they, wont they’ question over raising the debt ceiling. After months of discussions and political arguments amongst the Republican and Democratic leaders they are expected to vote this week on whether to raise the US borrowing limit and avert default payments.

So what have the effects been on oil?

·       Oil has seen rises of nearly 3%, the largest recorded gain in three months. This is to a certain extent due to increased investor interest as bets are being placed that should the agreement be passed it will boost economic growth and provide upward pressure on energy demand and prices. Investors are pulling out of equity markets and piling head first into commodities, mainly oil and gold.

·       As oil prices surged on potential profit taking, the future of oil demand remains cloudy. US jobless data released shows high levels of unemployment and factory outputs have slowed down to a snail’s pace as industrial reports show the weakest rates of growth since the industrial powers struggled back in 2009 during the recession.  Eurozone manufacturing PMI data also drifted to below 50 in July, its worst since September 2009.

·       The price of gold has slid by at least $15 an ounce.  With gold traditionally being a refuge for traders and investors concerned about the state of the economy, this could spell out easing on economic tensions.

And in other news...

·        We went back to the 1940s this week when it was reported that BP have had to close the Forties Pipeline system to remove an unexploded mine from World War II.

·        A tropical storm, Don, meant that Shell Oil had to halt oil output. This resulted in a total of 530,337 barrels of oil output being lost over five days. Operations were restarted on Sunday after it was confirmed there was no storm damage and production is slowly ramping back up. There is a high probability that another tropical wave will develop into a storm or hurricane (called Emily!) in the next few days which will be another blow for oil production numbers. The Gulf currently accounts for around 30% of oil and 12% of gas production in the US.

·        The UK gas system has a healthy supply outlook over the coming weeks, an abundance of LNG cargos are anticipated to arrive and temperatures are forecast to be above seasonal norm (dust off your shorts and flip flops!).  

·        Rough Storage is feeling rather bloated so to speak. Currently Rough gas storage levels have reached 3550 mcm, record highs for this time of year.