China Macro Concerns Impact Commodities: Natural Gas Surges Amid Supply Uncertainty

The Commodities Feed: China macro concerns grow

Weak Chinese data yesterday weighed heavily on the commodities complex. However, there was an exception: European and Asian natural gas prices rallied on continued uncertainty over Australian LNG supply.

 

Energy: Natural gas spikes higher once again

The effects of weaker-than-expected Chinese macro data rippled through the commodities complex yesterday, including oil. ICE Brent settled more than 1.5% lower on the day with worries over what this weak data means for the Chinese economy and oil demand. In addition, much stronger-than-expected US retail sales likely led to some questions over whether the US Federal Reserve may still have a bit more to do when it comes to policy tightening.  

API data released overnight was more constructive, with US crude oil inventories falling by 6.2MMbbls over the last week, quite a bit more than the roughly 2.5MMbbls draw the market was expecting. In addition, Cushing crude oil inventories fell by 1.03MMbbls, whilst for products, gasoline stocks declined by 761Mbbls and distillate inventories increased by 658Mbbls. The more widely followed EIA weekly report will be released later today.

Natural gas prices continue to trade in a volatile manner. TTF settled more than 12% higher yesterday with growing concerns over the risk to Australian LNG. There was no breakthrough in talks yesterday to avoid strike action and so clearly the risk of supply disruptions is growing. We should get more clarity on the situation towards the end of the week. However, the European market is in a very good position. European storage is basically 90% full now, hitting the European Commission’s goal about two and a half months before the target date. It is looking as though European storage will essentially be full before the start of the next heating season and so we would expect to see renewed downward pressure on prices, particularly once there is some clarity around Australia.