The global energy crisis is spreading in the oil market.
Brent crude soared to US $ 85.10 a barrel on Friday, a price that would have seemed unthinkable just 18 months ago, when COVID-19 disrupted global mobility and destroyed demand.
An underlying recovery in consumption – driven by road fuels, freight activity and lately air transport – is now fueled by the energy crisis.
With natural gas trading at close to US $ 200 per barrel in Europe, the consensus among analysts is that global demand for oil would rise an additional half a percentage point as companies rush to obtain any fuel that can. be used as a substitute. , from diesel to oil to crude.
To outsiders, such a change may not seem like much. In practice, this is a transformation, going beyond the month-long production increases that OPEC and its allies aim to bring to a market that was already boiling through its inventories.
West Texas Intermediate crude for November delivery on Friday rose US $ 0.97 to US $ 82.28 per barrel on Friday, up 3.7% for the week.
Brent crude for December delivery on Friday rose US $ 0.86 to US $ 84.86 a barrel, up 3% weekly.
“The situation is tense and OPEC is tightening excessively,” said Gary Ross, an experienced oil consultant turned hedge fund manager at Black Gold Investors LLC. “The larger energy problem makes it worse because you get substitution on top of the seasonal increases in demand. It’s a pretty explosive situation.
Oil refiners are making as much money as at any time since the start of the pandemic. Gasoline margins in the United States are recovering at a time of year when they are expected to decline. In Europe, profits from manufacturing diesel are the highest since March of last year, while prices for propane and low-sulfur fuel oil hit their highest level since 2014.
Nowhere is the strength of oil clearer than in the futures curve, which traders use to bet on the health of the market. Nearby prices are trading at their highest premiums compared to those further out in years, with closely watched Dec-Red Dec spreads on Brent crude and European diesel at their strongest since 2013. Such a pattern, known in industry jargon as offset, indicates relative rarity. supply.
These signs of strength in the futures market reflect what most analysts see on paper – supply exceeding demand by about 1 million barrels per day in the fourth quarter.
To be sure, the energy crisis is not necessarily a one-way bullish force for oil demand.
A worsening crisis in China and other countries with large heavy industry sectors raises the specter of declining industrial production, weaker economic growth and, with it, d ” a reduction in fuel consumption.
China has already said it will allow electricity prices to rise, removing price caps for energy-intensive companies.
A raft of Wall Street banks have already cut their economic growth forecasts for the world’s largest oil importer next year.
In Europe, too, everything from zinc smelters to carbon dioxide factories has at times been forced to cut production to some extent, potentially mitigating the impact of the switch from gas to oil.
“Many energy-intensive industries have been forced to shut down or scale back their operations due to the high cost of energy,” said Toril Bosoni, head of the petroleum markets division at the International Energy Agency (IEA ) in an interview with Bloomberg Television, pointing out the risk to oil demand.
For now, however, oil consumption is increasing. In Europe, strong mobility data is replicated in demand figures. Deliveries of petroleum products in
Spain last month posted gasoline demand 5% higher than 2019, while diesel demand was only 0.5% lower, according to pipeline operator Exolum.
The IEA said this week that demand for gasoline has fallen only 2% from pre-pandemic levels globally.
Even aviation is showing signs of life. Air traffic in Europe has returned to three quarters of its normal level, compared to around half in June. Companies from United Airlines Holdings Inc to EasyJet PLC increased capacity after U.S. travel rules relaxed and the European vaccination program reduced cases.
The increased demand due to the switch from gas to oil is also manifested in the physical market, where barrels of oil are bought and sold.
Sokol’s oil, a diesel-rich grade from eastern Russia, is trading at its highest in 21 months.
In the North Sea market which is helping set the global benchmark price for crude, spreads have widened over the past week, with traders citing growing demand from European refiners and lower freight loadings in November. .
With the recovery now becoming widespread, refiners Repsol SA, OMV AG and Royal Dutch Shell PLC all posted stronger margins in the third quarter, strengthening their incentive to produce more crude.
Additional reports by AP
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