Oil continues to climb as energy supply crisis continues to eat into tight global supply
The global energy supply crisis continues to show its teeth, as oil prices extend their upward march this week, due to the continued surge in demand for fuel by traders – who, against a backdrop of limited supply response, depletes global stocks.
The relative calamity of Covid-19 and the return to normalized mobility in a context of the energy crisis are bullish factors that have amplified to the extreme.
In the near term, the upside risk to crude is real and a brief spike to $ 100 is not ruled out as oil becomes a viable substitute for heat and electricity, especially in Asia.
However, there is an inherent downside risk if oil prices stay too high for too long, and the negative lag effect on demand for oil – whether it is destruction of GDP or the economy. price elasticity – is an underestimated risk to a few months.
November and December will still be incredibly tight as the energy crisis continues and OPEC + sits on the sidelines.
Gross balances appear bullish through January 2022 as improving margins support incremental runs amid short-term price increases for product demand.
Nonetheless, liquid balances indicate a weaker market from March 2022 and higher price signals encourage more marginal supply in the market.
In the very short term, there are a few events that could potentially tip the balance and lower the value of oil indices a bit.
Demand for oil could be dampened by Russia’s return to lockdown or by other countries with low vaccination rates taking a similar path to a new lockdown.
Another downside risk comes from the United States, where a mandate for TSA workers to get vaccinated could potentially disrupt air traffic.
On the bullish side, there is no short-term supply up the sleeve, unless it comes from OPEC + drawing on its multi-million bpd reserve capacity, which seems unlikely for the moment, as the alliance’s two heavyweights, Saudi Arabia and Russia, have expressed their support. for the continuation of the cautious approach to the offer.
Prices may need to rise before inevitably falling in 2022 amid impending oversupply that will prompt OPEC + to eventually adjust its supply plan.
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