Last week saw oil prices rise to an almost three-year high as inventories fell, economies struggled and consumers panicked.
When the energy situation makes headline news away from the trade and business media, the pressure is on. In closing trade last week, Brent crude settled above US$78 with West Texas Intermediate (WTI) close to US$74 a barrel.
The draw on oil inventories in the US is a leftover complication of Hurricane Ida last month. Supplies are still not back to normal at a time when refineries are looking for more supply.
The only short-term solution will be to draw on stocks in storage and increase imports.
Feeding demand
As US refineries look to feed demand, traders say more oil is being shipped from Canada as well as countries as far away as Iraq.
There was an increase of 10 in the rig-count last week, but no immediate news of a rise in US production. The US Energy Information Administration said that US stocks were down by 3.5 million barrels to 414 million barrels; the lowest since 2018 when the fourth quarter saw tight inventories.
Leading energy producers, ministers and CEOs gathered in Dubai last week for Gastech, the industry’s first in-person meeting in several years.
There was a sense of concern, frustration and urgency as the market battles with high gas prices and possible energy shortages this winter.
The Secretary General of OPEC, Mohammad Barkindo called for sustained investment in hydrocarbons, arguing that this tightness in the gas market is a direct result of under-investment in much needed fossil fuels.
Immediate green energy
"Emotions have overtaken industry facts," he said, referring to the almost blind insistence on immediate green energy.
He reminded us that the world is on a de-carbonisation journey and that “all the energy sources are required in this transition,” as energy demand will grow by 28% in the coming years to 2045.
Barkindo said he expects that “oil and gas cumulatively will account for over 50% by 2045,” and he called for a more realistic narrative and a focus on carbon emissions.
He said we all need to work together "to make the world a better place and the oil and gas industry has an important role to play in that regard".
While gas was the main focus at Gastech, energy producers and key players focused on the need for sustained investment.
Lack of investment in the hydrocarbon sector has caused delays in maintenance and has forced the cancellation of some projects. The energy minister of Qatar, Saad Al-Kaabi said the big danger now is that the "euphoria around the energy transition is forcing companies not to invest".
Supply crunch
Explaining the need for hydrocarbon energy to fuel the transition, he cautioned that “people are now realising there’s a supply crunch and we haven’t even got into the winter season yet.”
The UK is facing shortages already with some petrol stations closing this week causing car queues to fill tanks in many parts of the country. The government has said there’s no shortage of fuel, but the problem is being caused by a shortage of drivers and delays in the supply chain.
Gas prices for heating this winter will be higher and in a report from ANZ, analysts said that the shortage of gas “could encourage power utilities to shift from gas to oil,” in some countries. According to the UK energy industry body OGUK, gas prices have risen by 70% in the past two months as the price of natural gas is up 250 percent since the beginning of the year. Europe is particularly hit by a reduction of LNG from Russia and underinvestment in gas infrastructure.
Signs of recovery
The global economy is still looking for signs of recovery, but a signal by the US Federal Reserve this week could set the stage for higher interest rates next year.
The Fed seems confident of an economic rebound, according to a note from Commerzbank and that in turn "ultimately points to robust US oil demand".
This is good news for oil producers, but a supply crunch could be underway as some producers struggle to deliver adequate supply.
OPEC delivers its World Oil Outlook this week and plans its next virtual ministerial on October 4.