Consumers around the world will feel the effects of rising energy prices as demand exceeds supply, raising the cost of travel, heating and food, analysts at S&P Global Platts said.
“We’re going to see it fuel all commodities,” said Chris Midgley, global head of analysis, S&P Global Platts, noting that supply is striving to keep up with an “increase in demand as we recover. trough in the worst effects of COVID in April 2020. “
Midgley was speaking at the Platts Virtual Energy Summit press conference.
“We are heading into a ‘winter of discontent’ where supply in all sectors struggles to keep up with the rebound in demand, leading to spikes in commodity prices,” he said.
Limited gas supplies in Europe pushed the benchmark European TTF contract price to $ 33.77 / MMBtu on average in the fourth quarter, up from the third quarter average of $ 29.00 / MMBtu.
High gas prices have caused fertilizer factories to shut down, spiking prices, Platts Analytics estimates 3 million acres of U.S. corn will switch to soybeans, pushing corn prices and margins up. lower ethanol, said Rick Joswick, global head of petroleum analysis, S&P Global Platts.
Gas prices have also increased in Asia and rising prices have impacted refining margins globally.
This added between $ 4 and $ 5 / billion to refinery operating costs for refiners using gas for electricity, with some refiners using fuel oil instead for electricity, Joswick said.
“The high natural gas prices resulting from the switch from gas to oil add just over 500,000 bpd to oil demand this winter,” he said at the press conference.
The importance of the agreement with Iran
The change of fuel increases the attractiveness of an already tight oil market.
OPEC + decision to limit November’s quota increases from the expected 800,000 million bpd to 400,000 bpd shows just how tight the oil markets are, as the price of Brent surpasses the 80 level. $ / b to reach levels not seen since September 2018.
“As OPEC unwinds its quotas, it will have limited capacity to deal with supply disruptions or an Iran-free deal next year, which could push oil prices down further north,” he said. Midgley.
That an agreement is reached to allow 1.5 million barrels a day of Iranian oil to return to the world market is only one flash point that could tip the balance between supply and demand for oil. Other factors include the outcome of upcoming elections in Libya and Iraq as well as the intensity of the hurricane season on the US Gulf Coast next season.
These supply disruptions could exceed reserve capacity and drive over $ 100 / bbl of oil, but “that’s not our primary forecast,” Midgley said.
OPEC has around 3.5 million b / d of idle capacity, but only about 1.8 million b / d of sustainable idle capacity, he added.
Shale oil plays a discreet role
Midgley noted that US shale oil plays a less important role as a transitional oil supplier. This is in part due to “strong capital discipline” on the part of the producers, as the shale deposits seem to have lost their luster for the big players who have not increased the number of their drilling rigs.
The number of U.S. rigs increased for the fourth week in a row, according to Enervus data released on Oct. 14, with the Permian adding three new rigs to reach 272 drilling rigs, 63% of the pre- pandemic in March 2020.
While smaller players have increased the number of platforms, their platforms are less productive, Midgley said.
According to data from the Energy Information Administration, production of new oil wells from the Permian platforms averaged 1,228 b / d in September, with October levels falling to 1,223 b / d .
In addition, small players have felt the loss of necessary capital from banks due to the shift of investors from fossil fuels to investments in energy transition, he noted.