Record natural gas prices will drive up demand for oil

Record natural gas prices are prompting more utilities to switch from gas to petroleum derivatives, fueling the flames of an already strong rise in oil prices.

A Reuters report quoted an OANDA analyst as saying that there are a lot of bullish factors for oil right now, and they’re not going away anytime soon. These factors included increased demand for fuel due to growing economic activity and lingering fears that the coming winter will be cold and energy supplies will be tight.

This means that the current deficit in the oil and gas markets will also continue, potentially pushing prices above $ 100 a barrel, a level that Bank of America said earlier this month would tip the world into a tipping point. recession.

According to JP Morgan, gas-to-oil conversion is not yet widespread enough to drive oil prices even higher.

“This means that our estimate of 750,000 barrels per day of gas-to-oil switching demand under normal winter conditions could be significantly overestimated,” the bank’s analysts said. noted in a note cited by Reuters.

Yet another report, also by Reuters, said other analysts expected many switches from gas to oil this winter, which would push up oil prices and bankrupt some UK energy suppliers.

“This has never happened before on such a global scale. The market has always tried to replace expensive oil with much cheaper natural gas,” Reuters said, citing a commodities analyst at SEB.

Now the roles have turned and the two commodities are skyrocketing not only amid forecasts of a cold winter, however inaccurate they may be at this point, but also expectations of higher energy demand over the next decade. this winter season.

Meanwhile, the offer remains tight. OPEC + refused to increase production by more than 400,000 bpd per month. Russian President Vladimir Putin has said the country will step up gas deliveries to Europe, but some analysts doubt that he has the capacity to do so, even if he is prepared to do so without expecting concessions in return, which is likely.

“Currently, the Russian domestic gas market remains tight, with low stocks, production already nearing peak and looming winter in Russia as well, limiting gas export capacity,” said Adeline Van Houtte of the ‘Economist Intelligence Unit.

By Irina Slav for Oil Octobers

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