Crude Oil Demand Rising Due to Energy Crisis and Expected Cold Winter
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Crude Oil Demand Rising Due to Energy Crisis and Expected Cold Winter

Crude oil prices could be set to rise as demand grows from the gas and coal shortages being seen in Europe and China.
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The demand for crude oil is witnessing a strong rebound as more economies continue their recovery from the effects of the pandemic. Soaring gas prices in the run-up to winter have raised the possibility of larger volumes of crude oil being used for power generation, plausibly leading to increased demand.

Many market observers have forecast that the OPEC+ alliance, led by Saudi Arabia, will need to consider increasing its planned 400,000 barrels per day output in November to curtail the price increase — with the alliance predicting demand may outstrip supply over the next two months. This is coming on the back of a sixth consecutive week of gains for the New York futures despite slipping to $75 per barrel last Friday.

Source: Nymex

With little hope of Iranian oil entering the market in 2021 and a low level of investments to increase output fast from US shale producers, a decision by OPEC to increase supply to the market beyond the initial plan could stabilize rising prices.

It’s (Not) a Gas in Europe

Europe is currently facing a crisis. It is witnessing a shortage of gas, coal, and Norwegian water, all of which are used to generate electricity. This is showing little signs of slowing down with increasing demand for power as winter comes and the continent continues its recovery from the pandemic. 

This rising demand has caused a sharp price increase by as much as 12% in the Dutch front-month natural gas futures and its UK equivalent. The price of Brent crude has also hit a yearly high, surging past the $80 mark recorded in October 2018.

The effects of this increase in gas prices have been felt across Europe. In the UK, some smaller energy supply companies have shut down. Electricity retailers in France too are struggling to meet demand and are on the verge of folding, with the government promising to block any rises until next Spring.

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China Faces Coal Woes

Asian powerhouse China is not left out of this energy crisis, despite the Evergrande and supply chain situations stealing the headlines. Rising global coal prices combined with shortages have led to reduced electricity consumption in a large portion of mainland China.

Coal is the major source of electricity supply in China and globally. The increasing demand for electricity following the pandemic has not been met with an increased supply. This has produced a net effect of an energy shortage, sharp price increase, and production delays in China.

The supply challenge in China has been caused due to several factors; global coal shortages, import restrictions, utility price-fixing, and CCP emissions Targets. 

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Less Pollution is No Solution

Energy company SSE plc has said that poor weather conditions witnessed this year has hit the renewable energy sector hard. The company’s renewable energy output over the Spring and Summer was only one-third of its projected output.

Low winds, dry weather, and high gas prices have combined to increase energy costs. SSE reported that wind and hydro outputs between April 1 and September 22 were at least 32 % lower than their intended target. This is already equivalent to a reduction of its full-year production prediction by 11%. The summer was one of the least windy recorded and driest in over 70 years.

Do you think the Winter will deepen the current energy crisis? Let us know if you are concerned (or not!) in the comments below: