Analys

Europe’s energy policy unravels a potential advantage for US energy over Europe

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3 år sedan

den

22 september, 2022

Redaktionen

The clock is ticking for Europe to shield its economy amidst the current energy crisis. The cost of electricity across the European bloc is nearly 10 times the 10-year average in response to Russia cutting back natural gas supplies in retaliation to sanctions. There has been a substantial increase in the share of supply of Liquidifies Natural Gas (LNG) and alternative suppliers as a direct replacement of waning Russian gas supply.

Figure 1: Natural gas flows in the European market, first half 2022 versus first half 2021

Karta hur importen av naturgas till Europa har förändrats — Source: Bruegel, WisdomTree as of 6 September 2022. Please note: Arrows width indicates size of 2022 flow.

European leaders are racing to come up with a plan on energy intervention in the power markets. One of the measures being touted is imposing an energy windfall tax on oil and gas profits to help households and businesses survive this upcoming winter season. The plan is to re-channel these unexpected profits from the energy sector to help domestic consumers and companies pay these high bills. The windfall tax on the oil and gas companies should be treated as a “solidarity contribution,” according to European Commission (EC) President, Ursula von der Leyen.

Imposing a windfall tax on those profiting from the war

A windfall tax would impose a levy on the revenues generated by non-gas producing companies when market prices exceed €200 per megawatt hour (Mwh) and redistribute excess revenues to vulnerable companies and households. There has been greater consensus among other European Union (EU) countries on the windfall tax compared to other parts of the European Commission’s 5-point plan. This includes – setting a price cap on Russian gas, a mandatory reduction in peak electricity demand, funding for ailing utility companies, a windfall tax on fossil fuel companies and changes to collateral requirements for electricity companies. The EC’s plan will need to meet the approval of the bloc before being enforced. The most controversial issue remains the Russian price cap – aimed at penalising Russia for weaponising energy.

Coordinated energy policy needed despite different energy mix across EU bloc

There are major differences between member states based on those that rely on coal, nuclear or renewable power owing to which imposing a one energy policy will be challenging. Austria, Hungary, and Slovakia, known to import large amounts of Russian gas are against the price cap on Russian gas. On the other hand, a number of EU countries including France, Italy, and Poland, support a cap, but argue it should apply to all imported forms of the fuel, including LNG. Germany is undecided but fears the disagreements on the price caps risk spoiling EU unity. Spain, a big generator of wind and solar power was quick to draw criticism of the proposed €200/Mwh as it does not correspond to the real costs and fails to support electrification and the deployment of renewables.

In the US, various Senators including Senate Finance Chair Ron Wyden, have proposed legislation that would double the tax rate of large oil and gas companies excess profits. However, given the current political climate it seems increasingly unlikely that these proposals would gain any traction in Congress.

Europe’s energy policy likely to put a strain on capex in the near term

Since the oil price plunge from 2014 to 2016 alongside climate change awareness and Environmental Social and Governance (ESG) mandates, the energy sector saw a sharp decline in capital expenditure (capex). Since then, capex in the global energy sector has failed to attain the levels last seen at the peak in 2014. While capex trends in Europe’s energy sector had begun to outpace that of the US, driven mainly by a rise in the share of spending on clean energy, we believe the impending energy crisis and energy policy including the national windfall levies in Europe are likely to disincentivise capex in Europe compared to the US over the medium term. High prices are encouraging several countries to step up fossil fuel investment, as they seek to secure and diversify their sources of supply.

Source: Bloomberg, WisdomTree as of 31 August 2022.

The divergent energy policies and prevalent supply situations in the US and Europe opens up a potential opportunity in the energy sector. The energy sector has been the unique bright spot in global equity markets in 2022 posting the strongest earnings results in H1 2022. Despite its strong price performance, the US energy sector trades at a price to earnings (P/E) ratio of 8x and has a dividend yield of 3%. In September 2008, the energy sector had a 12.5% weight in the S&P 500 and was the fourth largest sector by market capitalisation in the world’s largest economy and equity market. Fast forward to today, the energy sector accounts for only 4% of the S&P 500 Index. While the future trajectory is greener, the world has come to terms with the fact that we will require oil and gas in the interim in order to fulfil our energy requirements. Investment is increasing in all parts of the energy sector, but the main boost in recent years has come from the power sector – mainly in renewables and grids – and from increased spending on end-use efficiency. As Europe plans to reduce its reliance on Russian energy supply, it will become more reliant on US LNG imports. This should fuel further investment in the US energy sector in the interim.

Aneeka Gupta, Director, Macroeconomic Research, WisdomTree

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Crude prices hold gains amid fresh tariff threats

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35 minuter sedan

den

25 mars, 2025

Redaktionen

Brent crude prices have held onto gains after rising for four consecutive days, increasing by USD 2.8 per barrel over the past week (since last Tuesday). Late last week, we saw a significant uptick in prices, primarily driven by U.S. sanctions on Iran and a surge in speculative long positions, which rose by as much as 45 million barrels week-on-week (WoW).

Ole R. Hvalbye, Analyst Commodities, SEB

Today, crude prices remain supported as fresh threats from the U.S. president add to upward momentum. President Trump has signaled that he will impose a hefty 25% tariff on countries purchasing crude oil from Venezuela, further tightening the global supply side. This move is naturally bolstering crude prices as concerns over reduced supply growth.

This latest development is particularly challenging for China’s private refiners (Teapots), which are already facing weak refining margins and excess capacity. The imposition of tariffs on Venezuelan crude could exacerbate these difficulties, making it even harder for these refineries to stay competitive.

As of now, Brent crude is trading at USD 73.3 per barrel, having increased by USD 0.2 per barrel since the market opening.

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Analys

Crude oil comment: Ticking higher as tariff-panic eases. Demand growth and OPEC+ will be key

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24 timmar sedan

den

24 mars, 2025

Redaktionen

Higher last week along with equities and Iran sanctions. Brent crude gained 2.4% last week. It closed the week at USD 72.16/b and traded within a range of USD 69.9 – 72.51/b with the high of the week being set on Friday. New US sanctions towards Iran was one of the drivers while a continued rebound in global equities was an important ingredient as well. Brent crude is up 0.2% this morning at USD 72.3/b along with positive equities.

Bjarne Schieldrop, Chief analyst commodities, SEB

First round panic over harsh Trump tariffs is lifting with hopes for more targeted tariffs. Concerns for global economic growth and oil demand growth due to unexpectedly harsh Trump tariffs initiated a sharp selloff in equities as well as oil. Crude oil and equities have rebounded together as the first-round panic on Trump tariffs has lifted. Equity futures are rising 0.5% or more this morning on hopes that the next round of Trump tariffs will be more targeted and less broadly damaging. Looking at equities this morning one should expect Brent to move yet higher today.

Speculators are putting money back into the market. Net long speculative positions rose 45 mb over the week to Tuesday last week following an almost non-stop selloff since late January.

No oil market surplus yet. The question is mid-year onwards. It’s about oil demand growth and OPEC+. The global oil market is not yet running a surplus, but it will likely do so by mid-year. Key will be:

1) How will global oil demand growth develop in response to Trump tariffs?

2) Will OPEC+ decide to lift production yet higher after its first hike in April?

OPEC+ has already decided to lift production in April. Our impression is that that decision was partially influenced by Donald Trump asking for more oil and a lower oil price. I.e. that OPEC+ (controlled by Russia and Saudi Arabia) now has a slightly different approach to how they set production targets. I.e. that it is no longer just about price but also about the political relationship with Donald Trump. The Joint Ministerial Monitoring Committee (JMMC) will meet on 3 April to decide what to do in May.

Net long speculative positions in Brent crude and WTI rose 45 mb over week to Tuesday last week.

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Analys

Oil prices climb, but fundamentals will keep rallies in check

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7 dagar sedan

den

18 mars, 2025

Redaktionen

Brent crude prices have risen for three consecutive days, gaining USD 1.7 per barrel since last Thursday’s close. On Friday afternoon, prices briefly dipped to USD 69.9 per barrel before rebounding to a high of USD 71.8 per barrel yesterday morning. As of this morning, Brent crude is trading at USD 71.67 per barrel, up USD 0.77 per barrel since midnight.

Why?

1. Chinese economic data
Two days ago, China released better-than-expected consumption, investment, and industrial production data for the start of the year, signaling economic resilience despite the need for further stimulus. With Donald Trump’s tariffs posing a risk to growth, China has responded by committing to policies aimed at boosting incomes, stabilizing equity and real estate markets, and reviving economic consumption – all of which naturally support crude and refined product demand.

2. U.S. strikes on Yemen’s Houthis
The U.S. airstrikes on Yemen’s Houthis on Sunday, March 16 served as a stark reminder of geopolitical risk, a factor that has not been fully priced into the market recently.

3. Rising tensions in the ME
Escalating tensions in the Middle East are currently (short-term) overshadowing concerns about a potential global oversupply. Overnight, Israel launched a series of military strikes on Gaza, breaking a nearly two-month ceasefire.

4. U.S. sanctions on Iran
Iran’s Oil Minister stated over the weekend (March 15) that Iranian oil exports are “unstoppable” and that Iran will not relinquish its share in the global oil market. The new U.S. administration has already imposed sanctions on Iranian crude, but these have yet to impact production levels significantly.

As of February 2025, Iran’s crude production stood at 3.23 million barrels per day (bpd), remaining above 3 million bpd since September 2023 (Platts data). Of this, Iran exports approximately 1.7 million bpd. For comparison, under Trump’s previous presidency, the U.S. withdrew from the Iran nuclear deal, and Iranian crude production fell to 1.95 million bpd by August 2020, significantly reducing its export capacity.

If the Trump administration reintroduces maximum pressure sanctions on Iran, the market impact could be substantial. In a worst-case scenario, where Iran loses its entire 1.7 million bpd of exports, and if Saudi Arabia or other major producers do not immediately compensate for the loss, global oil prices could theroretically see an upside of as much as USD 10 per barrel (Platts).

Bearish fundamentals still loom:
Despite these bullish factors, crude remains on track for a quarterly loss due to fundamental market weaknesses. Escalating global trade tensions threaten oil demand. OPEC+ is set to increase production from April, adding additional supply to a market already at risk of oversupply.

As a result, while geopolitical risks and bullish headlines provide short-term support to prices, SEB: forecasts that fundamental market conditions limit the potential for sustained price rallies.

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