Today, Money Morning … oil prices have risen again due to supply problems … it has been a tug of war between supply and demand in the energy markets … diversification from Russian energy … and much more …
I hope you enjoyed your Easter vacation with family and friends.
This long weekend in the energy markets was certainly interesting.
US natural gas prices rose on Monday and reached their highest level since 2008. This is mainly because the spring will be colder, so the demand for heating is increasing, as well as the fact that the US exports a lot of LNG gas to Europe.
Although gas prices fell on Tuesday, it still looks difficult. The U.S. Energy Information Administration said Friday that the U.S. ended the winter with the fewest natural gas storage facilities in three years.
When it comes to oil, prices are rising again due to supply problems.
Protests disrupt Libya’s production, its National Petroleum Corporation (NOC) warns of “the beginning of a painful wave of closures during the boom in oil and gas prices.‘
You know, oil prices fell at the beginning of the month after the United States announced “the largest oil spill in history– 180 million barrels over the next six months to lower gasoline prices as inflation really starts to bite.
As the White House put it at the time:
‘The scale of this emission is unprecedented: the world has never emitted oil reserves at such a rate of 1 million a day for this period of time.‘
But it seems that the announcement did not weaken the markets for long.
At the time of writing, Brent is trading at $ 107.41, which is close to the level it was at the time the White House made the announcement.
It was a tug of war between supply and demand in the energy markets
First, demand has been hit by COVID blockades in China, as well as concerns about global growth as inflation rises.
But then there are many concerns about supplies.
OPEC has so far resisted supply increases, giving them some degree of control over oil prices.
OPEC was forced to cut oil production after demand for oil was severely affected during the pandemic. They are sticking to their plan to increase oil supplies by about 400,000 barrels a day in monthly increments, even as oil prices continue to rise.
And, of course, there is great concern about what will happen next when Europe considers banning Russian energy.
As you probably know, Russia is a powerful power in the energy sector. It is the second largest oil exporter in the world.
The total Russian exports of crude oil and refined products in 2020 amounted to about 7.4 million barrels per day. A little more than half, or about four million barrels a day, goes to Europe.
Rystad Energy, the UAE, Saudi Arabia, Kuwait and Iraq estimate that they have about four million barrels a day, which they can bring to market in about 3 to 6 months. This is still less than Russia’s total exports.
Thus, if the conflict drags on, we can continue to see rising energy prices.
Diversification from Russian energy
Europe is in a hurry to move away from Russian energy.
One way to achieve this goal is to diversify gas suppliers.
Last week, Italy, one of the largest importers of Russian gas in the EU along with Germany, struck a deal with Algeria to import natural gas.
After announcing the deal in a weekend interview with Corriere della SeraThe Prime Minister of Italy Mario Draghi said:
‘Diversification is possible and feasible in a relatively short time, less than we imagined just a month ago.‘
But as he continued, renewable energy is also an alternative:
‘The goal is to ensure the maximum speed of investment in renewable energy sources. Until now, the obstacle has been essentially bureaucratic and authoritative. We can no longer afford this veto.‘
Conflict serves as a catalyst for renewable energy as the world understands the importance of greater control over energy supply chains.
I mean, when the conflict has mainly affected Europe, the oil and gas markets are so centralized and interconnected that even large oil and gas producers, such as the United States, have not escaped high energy prices.
Renewable energy sources are rich and cheap. It is more decentralized. Almost every country can produce renewable energy sources in one way or another.
Until next week,
For Morning money
Selva is also the editor of of New Energy Investor, a newsletter looking for opportunities in the energy transition. For information on how to subscribe, Click here.