Oil, gas and coal markets pummelled by economic slowdown
Energy markets are being battered by spreading concerns that an economic slowdown will hit consumption of oil, natural gas and coal.
Oil, the world’s most used fuel, has seen prices fall by 20% from their 2019 peak in late April, with Brent crude oil futures threatening to fall below $60 per barrel for the first time since January.
Meanwhile, prices for thermal coal and liquefied natural gas (LNG), mostly used in power generation, have dropped to multi-year lows amid tepid demand.
The slumps come amid an economic slowdown and escalating global trade tensions, especially between the United States and China.
“Fear of global economic growth slowing,” said Peter Kiernan, lead energy analyst at the Economist Intelligence Unit (EIU), “afflicting the entire energy complex with worries that demand growth will be bearish this year.”
Kiernan added that the EIU had downgraded its forecast for global economic growth to 2.6% in 2019, down from 2.7%. At the start of the year, most forecasts for world growth were still at or above 3%.
Some economists are gloomier still.
“Calls in the market foreseeing a global recession have not helped sentiment,” ANZ bank said in a note on Tuesday.
“The continued escalation in trade tensions and broad-based fall in manufacturing…suggest that the downside risks to growth are becoming more prominent,” said U.S. bank Morgan Stanley.
The economic slowdown has not just scared off financial traders, which have been pulling cash out of energy futures and shifting it into perceived safe-havens like gold.
It is also starting to impact physical energy prices as consumers hold back new orders in a sign of a real slowdown on the ground.
In China, refiners are holding off placing new orders for crude oil imports in anticipation of lower prices once demand stalls further.
In coal markets, spot cargo prices for Australian thermal coal for export from the Newcastle terminal last closed at $68.25 per tonne, their lowest level since August 2016 and down 44% from their most recent highs a year ago.
Benchmark coal futures prices already fell to two-year lows below $65 per tonne by the end of May.
And in Asia’s LNG market, spot cargo prices were approaching $4 per million British thermal units (mmBtu) this week for the first time since April 2016, traders said. Prices are now down by 60% from their 2018 highs.
Some analysts said they had already heard of cargoes at prices fixed below that level.
“The LNG market wasn’t spared the selling, with some cargoes being sold under $4 per mmBtu,” ANZ bank said on Tuesday.