Just before the winter season, the natural gas crisis in Europe created a snowball effect on global energy markets. What started as very low gas stocks in Europe over the summer is now spilling over into oil, natural gas and coal prices around the world, with no silver bullet or sign of a major correction in the near term. in sight.
Brent crude prices close to $ 80
Brent raw prices topped $ 79 a barrel early Monday – the highest level in three years. Prices are now heading towards $ 80 – a level some analysts had forecast for the summer, but few market participants believed would happen due to lower prices and demand for the Delta variant. in some parts of the world in July and August.
However, with the approach of the winter heating season in the northern hemisphere, gas and electricity prices in Europe are rising, causing demand and prices for coal to rise in Europe and around the world, to as coal is used in the electricity sector. At the same time, economies are recovering from last year’s COVID crisis, with growth in energy-intensive industries. But as demand increases, supply remains limited due to underinvestment in new energy over the past 18 months, OPEC + cuts, and weather-related blackouts such as Hurricane Ida. in late August, which limited the supply of oil and gas to the Gulf of Mexico. the whole month of September.
Related: Europe Must Act To Avoid Energy Crisis This Winter
Because the supply of oil, gas and coal is struggling to catch up with the recovery in demand, energy price are mobilizing around the world.
Consumers and industries in Europe have already started to feel the effects of record gas and electricity prices. Industries across Europe are reduce operations due to record prices for natural gas and electricity, threatening to deal a blow to the post-COVID recovery. Utilities are increasing coal-fired power generation, increasing demand for coal, despite record carbon prices in Europe and the European Union’s commitments to become a net zero bloc by 2050.
European coal prices have reached a 13-year-old as Europe’s coal supply remains limited and utilities fire more coal-fired power plants amid soaring natural gas prices.
Rising natural gas prices are also stimulating global demand for coal. China and India are rebuilding low stocks of coal, coal prices in Asia at record highs.
Goldman Sachs doubles coal price forecast
Goldman Sachs recently almost doubled its price projection for coal prices in Asia, expecting Newcastle’s benchmark thermal coal to average $ 190 per tonne in the fourth quarter, down from a previous forecast of $ 100 per tonne, due to very high gas prices before the winter heating season.
In China, a squeeze in electricity supply could be looming amid soaring coal and gas prices and demand for electricity. Chinese authorities order some heavy industry factories to scale back operations or shut down to avoid power supply crisis, Bloomberg reports.
Spikes in global gas and coal prices are expected to increase demand for crude oil in winter as an alternative fuel, analysts say and OPEC itself to say. A shift from gas to oil and a continued recovery in global demand for oil has led analysts and major oil trading houses to predict that oil will hit $ 80 and even $ 90 this winter – and potentially $ 100 per barrel end of 2022.
“Wider concerns about tightening energy markets, especially natural gas, are spilling over into the oil market. The Asian LNG market is trading at an equivalent of over US $ 150 / bbl, while European gas prices are not too far from an equivalent of US $ 140 / bbl. These higher gas prices will lead to some conversion from gas to oil, which would support demand for oil, ”said Warren Patterson and Wenyu Yao, ING strategists. noted early Monday.
With the price of oil reaching $ 80 a barrel, however, it would be a pain point for many importers of crude, including large Asian customers such as China and India.
If the current price strength continues, the October 4 OPEC + monthly meeting could see the alliance relax cuts for November by more than the supply increase of 400,000 bpd each month, noted. ING.
By Tsvetana Paraskova for OilUSD
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