NYMEX Crude $ 82.28 UP $.9700
NYMEX ULSD $2.5737 UP $.0123
NYMEX Gas $2.4864 UP $.0514
NEWS
Calling it a “winter of discontent,” analysts at S&P Global Platts forecast continued high energy prices into next year. “We are heading into a winter of discontent where across all sectors supply is struggling to keep up with the rebound in demand, leading to spikes in commodity prices,” stated Chris Midgley, global head of analytics at S&P Global Platts during an online media briefing to discuss the energy outlook. “There’s no question consumers will feel the pinch of high energy prices, and not just high energy prices but that will feed into other commodities – food stuff, the cost of moving around, delivering Christmas gifts,” he continued.
He said the current spike in crude and natural gas prices is more a commodity bubble than a super cycle. “A super cycle is when you have a supply crunch, supply can’t keep up with demand. A bubble is when you see a surge in demand,” Midgley explained. He added that oil and gas demand has certainly surged as it recovers from the worst effects of the pandemic. The speed with which demand has recovered has supply struggling to keep up, he said. Adding to the oil supply crunch is the jump in natural gas prices, which is prompting a switch from natural gas to oil for fuel, which is expected to add 500,000 barrels a day to demand this year, he said.
S&P Global Platts is forecasting flat prices above $75 through July, dipping below $70 in August and rebounding back above $75 in September of next year. The energy analytics company also expects supplies to tighten further in the second half of 2022. Midgley said analysts have been surprised by the Organization of Petroleum Exporting Countries and their allies declined to increase production recently, signaling even tighter markets next year. He said OPEC+ spare capacity could handle one major supply disruption but not multiple disruptions, especially in the second half of next year. That illustrates why it’s important that the US and Iran revive their nuclear deal and return about 1.5 million barrels a day of Iranian oil to the market, he said.
Simon Thorne, global head of generating fuels and electric power analytics, sees US producers’ commitment to capital discipline contributing to supply tightness. “There’s less excitement to really ramp up,” said Thorne, citing a reluctance to significantly invest in fossil fuels as the energy transition gets underway. He said the high prices should have brought a more significant response in terms of increased production. “You have to ask if capital discipline will end, and if so, when. And if it doesn’t, that’s a key risk to the production outlook.”
The key risk for US consumers is a cold winter, Thorne said. If current capital discipline continues to constrain oilfield activity and winter demand is strong, gas prices at Henry Hub could soar to $12 to $14 per MMBtu, he cautioned, which will hurt the US economy. All the rig count increase and production increase is coming from small operators, said Midgley.
The analysts turned to Europe as a cautionary tale for the US, as European countries have implemented carbon prices that are laid on top of the cost of oil or gas, pushing consumer prices even higher. “The carbon price has done nothing but cause consumers pain,” said Midgley. “It doesn’t help decarbonization, it just causes the consumer pain.”
US refiners are expected to see improved margins as they are more able to access lower cost fuel whereas refiners in Europe and Asia will more likely be forced to buy high-priced gas and thus may trim runs, said Rick Joswick, head of global oil analytics.
US agriculture could undergo a transformation, said Patricia Luis-Manso, head of agriculture and biofuels analytics. She explained that expanding renewable diesel and sustainable aviation fuel production could reduce US farmers’ reliance on exports for soybeans and other oil seeds. An estimated 3 million acres or corn will switch to soybeans, leading to higher corn prices and weaker ethanol margins.
