Oil Has Dropped by More than 40% Since Its Peak

One of the few assets previously generating a positive return is now stuck alongside stocks and bonds in negative territory. Crude oil futures have fallen from over $130 in March to around $74. The front-month contract is down 2% year to date, which is better than the 10% decline in the S&P U.S. government bond index and the 16% decline in the S&P 500.

Kevin Muir of The Macro Tourist, ever the contrarian, wonders if there’s an opportunity here. According to the former institutional equity trader, the fundamentals haven’t changed all that much. However, the central theme of his oil thesis revolves around China. Crude futures contracts 36 months out look like a “paused bull market that is simply correcting.”

Increasing oil and gas revenues helped Qatar post a 30 billion riyal budget surplus in the third quarter of 2022. In the same period in 2021, the surplus was 900 million riyals. According to government figures, spending in the third quarter of 2022 totaled 51.8 billion riyals.

Total revenues in Q3 were 81.8 billion riyals, with oil and gas accounting for more than 93% or 76.3 billion riyals. The Gulf Arab nation currently hosting the WorldCup is one of the biggest exporters of gas worldwide and has benefited greatly from the increase in the price of both gas and oil.

When compared to the same period in 2021, oil and gas revenue increased 67% in the first half of 2022.

The budget surplus was 47.3 billion riyals in the year’s first half, up from 4 billion riyals the previous year.

Europe Moves Closer to Limiting Natural Gas Prices

The European Union is close to reaching an agreement on a natural gas price cap, with Brussels already planning for the coming winter as the global energy crisis shows no signs of abating.

On Tuesday, EU energy ministers met in Brussels, Belgium, to discuss the details of a natural gas price cap. The issue has divided the EU’s 27 member states, with some advocating for a lower cap of fewer than 200 euros ($211) per megawatt hour. In contrast, others are skeptical of the measure and want stronger assurances that it will not cause unnecessary market volatility.

According to officials, the cap could be between 180 and 220 euros per megawatt hour. This comes after the European Commission, the EU’s executive arm, proposed a level of 275 euros per megawatt hour, heavily criticized by many countries as being too weak and unlikely to be triggered.

In 2023, there will be more competition for the commodity, according to the IEA. They predict lower LNG market supplies but higher demand, particularly from China, which has started to ease Covid-19 restrictions and will need more gas in 2023 as its economy stabilizes.

The EU reached agreements with the United States, Qatar, and others to reduce its reliance on Russian hydrocarbons. However, experts believe the EU must start from scratch to prepare for next winter.