Saturday , June 25 2022

Gas prices skyrocket as global energy crisis worsens



[ad_1]

Energy demand is back today as the world economy reopens – but supply just didn’t keep up. Therefore, US oil prices have skyrocketed to $120 since falling to minus $40/bbl in April 2020. US oil prices surpassed $80 a barrel on Monday for the first time in nearly seven years.

Crude oil closed the day at $80.52, up 1.5%. The last time oil closed above $80 was October 31, 2014.

All of this comes as a sticker shock to many Americans who fill the pump during a time of year when gas prices usually cool. The national average gasoline price rose 7 cents per gallon on Monday to a seven-year high of $3.27, according to the AAA. Gas has nearly doubled since it dropped to $1.77 in April 2020.

High gas prices will only increase high inflation, squeeze the budgets of American families and harm President Joe Biden’s political fortunes.

Unfortunately, pump prices could rise even higher due to the global energy crisis.
Natural gas prices have skyrocketed, particularly in Europe and Asia, that power stations and factories can increasingly turn to a cheaper fuel source for electricity: crude oil.

“It’s just a case of trying to keep the lights on,” said Matt Smith, Kpler’s Americas oil analyst. “This essentially creates a demand that isn’t typically there”

Got $100 oil on the cards?

Citigroup on Monday raised its fourth quarter Brent oil forecast to $85 a barrel and said crude oil could see $90 from time to time. The Wall Street bank said it expected “price contagion this winter” and that power plants are expected to switch from gas to oil at a very high level.

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

Oil has long been there as a potential substitute for natural gas – but until recently it had no financial meaning. This is because for most of the past decades, natural gas prices have been very low and the switch to oil has been uneconomical.

A global energy crisis is coming.  There is no quick fix
But natural gas prices in Europe have soared from $2 per million BTU last year to $55 this fall. This is equivalent to $320 a barrel of oil.

Bank of America warned that a cold winter could increase oil demand by half a million barrels a day, pushing Brent crude to $100 a barrel. This will come as a further shock to American drivers as gasoline prices are priced above Brent crude.

“We may be just one storm away from the next macro hurricane,” Bank of America strategists said in a recent note to clients.

Record coal prices in China

It’s not just high natural gas prices that play a role here.

Coal prices in China have reached record highs due to flooding that shut down dozens of coal mines in northern China. Coal remains the main source of energy used for heating, power generation and steelmaking in China. China is now grappling with power outages, prompting the government to allocate electricity during peak hours and some countries to suspend production.
The UAE became the first Gulf state to commit to net zero.  Oil will still flow

Against this background, gasoline prices rose steadily in the United States, adding to the inflationary pressures plaguing the economy.

Patrick De Haan, head of oil analysis at GasBuddy, said gas prices of $3.30 nationally are likely around the corner.

“When I look over the horizon, I don’t see an organized drop in prices,” De Haan said. “The market is starting to feel explosive. There are grounds for this to continue.”

OPEC in the driver’s seat

While demand has been strong, oil supply has not kept up.

US oil production has been slow to recover from Covid, even as prices have risen. Many US oil companies are once again wary of oversupplying the market and are focusing much more heavily on giving cash back to shareholders who have lost a lot of money in the past decade.

Despite calls from the White House to significantly increase production from OPEC and its allies, the group only gradually increased production in early 2020. For now, they seem content to let oil prices stay high.

“They’ve always been swing makers,” said Smith of Kpler, “but my god, they definitely hold the power right now.”

[ad_2]
Source link