The Point of Ayr Gas Terminal, Talacre, Wales on September 20, 2021
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The global energy crisis is sending a message natural gasRecord highs for prices in Asia, Europe, and the U.K. Experts warn that America’s stratospheric price levels in Europe won’t be sustained.
It will all depend on the weather conditions in winter. However, the U.S. has a better position heading into winter because it is the world’s biggest natural gas producer and its inventory levels aren’t so low in Europe.
Francisco Blanch of Bank of America Merrill Lynch’s global commodities, equity derivatives, and cross-asset quant investment strategies said that they are at an “unique point in time” last week. “The Exchange.”He added that “The U.S. has a much greater degree of protection from this global trend in energy than any other country.”
This doesn’t mean that U.S. price will not fluctuate. On Tuesday, natural gas futures reached their highest point since December 2008. The contract was traded at $6.466 per Million British Thermal Units (MMBtu) on Wednesday.
While natural gas delivery for November has seen a decline in prices, it is still on pace for its seventh week of gains. The contract is currently trading at around $5.63 per MMBtu. That’s more than twice what they were in January.
However, the movements abroad can be even more dramatic. Deutsche Bank analysts noted that prices in Europe are increasing fivefold, while prices in America and Asia are 1.5 to 1. Natural gas prices have risen in Europe by the same amount as if crude oil was trading at $200 per barrel.
The firm sent a note to its clients stating that “the importance of these movements on inflation, growth or external accounts cannot be underestimated.” These price movements are huge.”
Prices for oil and coal are both on the rise. West Texas Intermediate crude futuresThe U.S. benchmark for oil was topped by $80 per barrelOn Friday, the international benchmark was established for the first times since November 2014. Brent crudeMeanwhile, the price of natural gas traded at its best level since 2018 Analysts believe that rising natural gas prices may even lead utilities to switch oil for the fuel.
There are many factors that have contributed to the rise in prices for natural gas, and other commodities such as oil and coal.
The recovery of demand comes as the economies return to work and people go back to normal pre-pandemic activity. Despite the unprecedented 2020 downturn, producers have been slow in increasing their output.
The fall saw European inventories drop below the average due to a colder than expected winter in 2020. Additionally, low wind speeds and dry weather impacted renewables’ energy production. Since carbon offsets can be expensive and there are no coal-fired plants left on the continent, everyone is now competing for natural gas.
Europe is now dependent on Russia for gas imports. Europe’s production of natural gas has dropped over the last 20 years. This year, Russia is limiting supplies to Europe. Some have called it a political move. President Vladimir Putin however stated that this week. Russia could boost outputTo ease Europe’s strain.
Europe is not the only country in urgent need of supplies. Asia is seeing a rise in demand as China and other countries look to move away. dependence on coal. Some cargoes may be shipped to Asia from Europe, which offers better rates.
According to the Oxford Institute for Energy Studies (OIES), this “perfect storm” is created by this convergence of factors.
The U.S. is not without its problems with power, as shown in Texas last winterMillions of customers were kept in darkness for several days. It is highly unlikely that the same energy crisis and price rise will occur in Europe or Asia.
“[The U.S.]The rest of Europe has not had to depend on it for its supply. That’s why Europe’s problems have been with Europe,” explained Robert Thummel. He noted that the shortage stems not from a lack of supply, but rather from a lack of infrastructure — specifically for liquified natural gas.
“You’re not going to see the U.S. to the rescue here, because there’s just not enough infrastructure on either side — on the U.S. side or the European side and most importantly on the Asian side to solve this,” he added.
Thummel explained that his prediction for natural gas prices is based on weather. Prices could remain in the $3-$4 range for a normal winter, with prices rising slightly if temperatures rise above average. However, prices could fall to as low as $2.50 or $3 for warmer months. If temperatures fall, prices can spike to the double digits.
The U.S. may be in a stronger position than Europe going into winter but wild swings on overseas energy markets can have global consequences. This week Credit Suisse lifted its forecast for fourth-quarter prices by more than 60% — from $3.50 MMBtu to $5.75 MMBtu.
In a note sent to clients, the firm stated that “the near-term set up around winter storage inventories as well as increasingly tight global demand foundations have proved more bullish” than they had expected. Although the target price is higher than average natural gas prices over the past few years, it still falls below $6.
JPMorgan raised its annual price prediction for 2022 by $1.70MMBtu, to $4.81MMBtu, in a note entitled “unthinkable upside and limited downside”. It is unusual to make adjustments to forecasts before the availability of winter weather reports. However, this was a justified decision. An analyst stated that there was an “absolute necessity” to alter forecasts due to “risks plaguing the balance at this time.”
According to the company, “We travel wherever the US supply-demand balance takes us. It has led us to a destination that we haven’t visited for quite some time.” JPMorgan projects prices at $5.50MMBtu for the current quarter. This would make 2021’s average cost of living $3.65 MMBtu.
Although the main driver is the energy crunch, volatility can also come from Wall Street companies shorting futures during the huge rally and being then forced to cover.
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