Where jurisdictional risk becomes an energy advantage

Energy prices are near 52-week highs, something that is not supposed to happen in July. Global demand is at its seasonal low point, the period of the year when prices typically soften and traders take their foot off the accelerator. Prices have not followed the script.

Emanuel Datt, chief investment officer at Datt Capital, sees that divergence as a signal rather than an anomaly. “Energy prices tend to rise leading into the second half of the year, and we believe there is upside risk to consensus given ongoing supply risks,” he says.

If prices are already elevated during the quiet season, the question is what happens when the northern hemisphere winter restocking cycle kicks in.

Supply risks are not going away

The geopolitical backdrop is adding complexity to an already tight physical market. The Strait of Hormuz has been the subject of reopening rhetoric, but Datt is cautious about reading too much into it.

The accord remains fragile. Even if an agreement holds, shipping lags will have a material impact on physical supply regardless of any deal. Tankers take time to move. Cargoes need to be secured, loaded and delivered. The market does not replenish overnight.

“We anticipate the market will be short of physical supply as we head into the northern hemisphere winter.”

That supply tightness changes the character of the seasonal trade. In a normal year, the restocking dynamic heading into winter is a marginal price driver. In a year of supply disruption, the risk skews sharply to the upside. The asymmetry favours investors who are already positioned.

Production is the filter that matters

The Australian energy sector offers a wide range of opportunities, from globally diversified producers through to single-asset explorers across multiple energy commodities. But Datt applies a clear filter to work out which companies are positioned to capture structurally higher prices.

It comes down to whether a company is already in production.

That single criterion narrows the ASX universe considerably. Energy is an asset-intensive industry. Explorers and developers face permitting uncertainty, financing risk and execution risk.

Existing producers face none of those hurdles. They are already generating cash flow and can benefit directly from higher prices without needing to work through the development pipeline first.

This dynamic skews the opportunity set towards mid-cap and large-cap companies. They tend to be the ones with producing assets, established infrastructure and the balance sheet strength to withstand commodity price volatility.

The outlook for jurisdictional risk

One of the more nuanced observations in Datt’s outlook concerns sovereign risk within Australia itself. Santos and other major companies have flagged elevated concerns about the domestic operating environment, citing changes to tax treatment, reservation policies and state-based royalty amendments as deterrents to new capital.

For large-scale development projects, those concerns are real. The regulatory uncertainty makes it harder to justify the capital required to bring new assets into production.

But for investors focused on existing production assets, the picture is different. Datt sees the jurisdictional concerns as creating an opening rather than a barrier.

“These concerns, while valid, create an opening for investors willing to focus on existing production assets. Given the permitting uncertainty, financial and delivery risks inherent in energy production development, existing projects often provide good risk-adjusted returns at the right time,” he says.

In other words, the same environment that is deterring new development is also reducing competition for capital flowing into producing assets. That is a useful dynamic for investors who understand the distinction.

What this means for portfolio positioning

The energy setup heading into the second half of 2026 has several moving parts: seasonal demand recovery, fragile geopolitical supply arrangements, a domestic regulatory environment that is cooling appetite for new development, and prices already running near annual highs in a period of low demand.

Each of those factors individually would warrant attention. Together, they form the core of Datt’s thesis for energy exposure in portfolios, specifically through companies with existing production rather than development-stage assets.

Datt’s view is that the opportunity in Australian energy is real, and it rewards investors who are selective about where in the value chain they choose to play.