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Oil producers in Australia pulled back from their highest levels in more than two years on Wednesday after a brief rally in crude prices snapped on Tuesday.

The S&P/ASX 200 Energy index was off as much as 0.6 per cent in early trading in Sydney with major exporters Woodside Petroleum and Santos each down 0.6 per cent.

The moves came after Brent crude, the international benchmark, settled 2.1 per cent lower at $63.34 a barrel overnight after hitting an intraday peak of $65.83 on Tuesday, the highest since mid-2015.

Oil had rallied after a major North Sea pipeline system was shut down.

“However, reports that repairs on the pipeline may take only a few weeks seemed to calm some nerves in the market,” ANZ analysts said. “The International Energy Agency also set to ease concerns by suggesting the market remains well supplied, and it can approve the release of emergency stockpiles if required.”

Still, the pipeline shutdown coupled with an explosion at an Austrian gas plant and a cold snap in Europe, which halted Russian imports to Italy, could have a lingering effect on global gas markets, said Wood Mackenzie analyst Massimo Di-Odoardo.

“There is still plenty of storage across Europe to cope with this. But if supply does not resume soon and the cold weather continues, prices will remain strong through the winter,” Mr Di-Odoardo said. “We might well see some competition between Europe and Asia to attract LNG this winter.”

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