Coal and Natural Gas Demand Rises
October 5, 2021
Crude oil and refined fuels product prices reached a 3-year high for WTI crude oil and ULSD in yesterday’s trading for nearby futures months. The day’s big news was OPEC+ deciding to stick to adding just 400,000 BPD starting in November. In July, OPEC+ agreed to add 400,000 BPD each month through April 2022 from this existing 5.8 million BPD agreed-upon cuts. Some thought that OPEC+ would increase their barrels to the market as supplies tighten, but they said fear of a demand slowdown due to COVID-19 was a big reason for them staying the course.
Increased demand for coal and natural gas pushes the whole energy complex higher, with both commodities exceeding pre-Covid demand. “Given the demand picture and the outcome of the OPEC meeting, the overall sentiment around crude is bullish,” said John Kilduff, partner at Again Capital LLC in New York.
Vitol’s CEO Russell Hardy said the company expects oil prices to have fallen to about $75 per barrel by this time next year. He told the Energy Intelligence Forum he expects oil demand levels to return to pre-pandemic levels by the summer of 2022. He said, “we are 2.5-3 million BPD behind 2019 oil demand levels, the vast bulk of that is jet fuel”.
The head of energy research at Goldman Sachs Group, Damien Courvalin, said he sees an extra 650,000 BPD of crude demand later this year as utilities dealing with high natural gas prices switch to oil. The bank expects power switching to cause oil demand and oil prices to increase as the global natural gas crisis worsens. The head of energy research estimates Brent crude futures will increase to $90 per barrel by the end of the year.
The head of the International Energy Agency, Fatih Birol, said that the current volatility in energy markets, which has brought considerable spikes in natural gas prices, has nothing to do with the world’s transition away from fossil fuels. He said high prices resulted from weather patterns and postponed maintenance outages due to the COVID-19 pandemic. It sees oil prices softening in the coming months.