Market Round-Up

Since the war in Ukraine began, EU countries have worked to cut demand for Russian oil and gas in an effort to significantly reduce their reliance on Russian. As a result, many Western countries have had to find new energy suppliers, including the Middle East, in an attempt to fill reserves ahead of the winter months.

Recent data suggests gas demand across the EU fell 24% below the five-year average for the month of November. Although partly due to an unusually warm autumn, such a significant decline in demand was a result of increased energy efficiency gains and a proactive shift towards alternative energy sources across the continent. The progression in reducing demand has further helped European countries build up energy storage levels to 95% capacity in mid-November.

However, the tightening of oil and gas imports from Russia has increased further. G7 members, including the EU, UK, USA, Canada, Japan, France, Italy and Germany, have agreed to place a price ceiling of US$60 per barrel on Russian oil which is linked to any company registered within the G7. The restrictive policy is designed to keep Russian oil flowing to countries such as India and China, but at a significantly lower profit to Moscow, which no longer has excessive pricing power over G7 countries. The real impact will be felt across the globe as many Russian oil importers rely on insurance cover and shipping services from companies inside the EU and/or G7 countries, meaning they would need to observe the price cap in order to ship into the listed regions.
As a result, a backlog of oil tankers has built up in Turkish straits as authorities demanded that any tankers holding Russian oil on its straits were fully covered by insurance providers. The Kremlin has responded, vowing to continue exporting its oil even if it is cut off from Western insurance markets.

The UK construction market slowed in November following rising interest rates hitting the housing market, causing building and borrowing costs to increase, while a weakening economic outlook also added to the slowdown.

Purchasing Managers' Index (PMI) data released this week shows that economic activity within the UK construction industry fell to a three-month low of 50.4 in November, from 53.2 the previous month, significantly below expectations.

With interest rates and inflation both significantly higher than this time last year, the cost of funding construction projects has significantly increased. As a result, construction businesses, investors and house buyers have looked to postpone purchases until they have better visibility on market conditions, including greater certainty in where future interest rates and costs sit.