Saturday , August 20 2022

As the global energy crisis worsens, so do gas prices


As the world economy reopened, energy demand returned today – but supply simply did not continue. As a result, US oil prices rose to $ 120 a barrel in April 2020 after falling to minus $ 40 a barrel. U.S. oil prices crossed $ 80 a barrel for the first time in nearly seven years on Monday.

During the day, oil prices rose 1.5% to $ 80.52. The last time oil closed above $ 80 was on October 31, 2014.

All of this is a label shock for many Americans, who fill it with a pump at a time of the year when gas prices typically cool. According to the AAA, the national average price of gasoline on Monday rose by 7 cents to $ 3.27 in the last year. Gas has nearly doubled since falling to $ 1.77 in April 2020.

High gas prices will only boost high inflation, squeeze the budgets of American families and hurt President Joe Biden’s political wealth.

Unfortunately, due to the global energy crisis, pump prices may rise further.
Natural gas prices have risen so much, especially in Europe and Asia, that power plants and factories can increasingly become a relatively cheaper source of fuel for electricity: crude oil.

“It’s just trying to turn on the light,” said Matt Smith, Kpler’s leading U.S. oil analyst. “It creates a demand that doesn’t really exist at all.”

Are there $ 100 worth of oil on the cards?

Citigroup on Monday raised its Brent oil forecast for the fourth quarter to $ 85 and said crude oil would sometimes reach $ 90. The Wall Street Bank has been waiting for “prices to catch up this winter” and for power plants to switch from natural gas, which is high in the sky, to oil.

Citi added that “a very cold winter” could see Europe “running out of gas” by February.

Oil has long existed as a potential substitute for natural gas – except recently, it has no financial significance. This is due to the fact that natural gas prices have been very low for most of the last decade, and the transition to oil is economically unsatisfactory.

The global energy crisis is coming.  There is no quick fix
However, natural gas prices in Europe reached $ 55 this fall as they fell below $ 2 per million BTU last year. That’s $ 320 a barrel.

Bank of America has warned that a cold winter could increase Brent oil demand by half a million barrels a day by raising it to $ 100 a barrel. This, in turn, would cause more etiquette shock for American drivers, as the price of gas is lower than the price of Brent oil.

Bank of America strategists wrote to customers in their latest notes that “we may be one storm away from the next macro hurricane.”

Record coal prices in China

It is not only high gas prices that play a role here.

Chinese coal prices have reached record highs in the wake of floods that have closed dozens of coal mines in northern China. Coal remains the main source of energy used in China for heating, electricity and steel production. China is now struggling with power shortages, prompting the government to use electricity during peak hours and stop some countries from producing.
The UAE became the first Gulf country to sign a net zero.  Oil will still flow

Against this background, gasoline prices have risen sharply in the United States, leading to inflationary pressures on the economy.

Patrick De Haan, head of gas analysis at GasBuddy, said gas prices of $ 3.30 were likely to be very close across the country.

“Looking at the horizon, I don’t really see prices falling in an organized way,” De Haan said. “The market is starting to feel explosive. There are reasons to continue.”

OPEC in the driver’s seat

Although demand was strong, oil supplies simply did not keep pace.

U.S. oil production has slowly returned from Covid – even as prices have risen. Many U.S. oil companies are struggling to re-supply the market and are focusing more on returning cash to shareholders who have lost money over the past decade.

Despite calls from the White House for OPEC and its allies to significantly increase production, the group only gradually increased production in early 2020. For now, they seem happy to allow oil prices to rise.

Kpler’s Smith said: “They’ve always been swing makers, but damn, of course they’re in power now.”

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