Rising demand for crude oil due to energy crisis and expected cold winter

Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please review our website policy before making any financial decisions.

Demand for crude oil is rebounding strongly as more economies continue to recover from the effects of the pandemic. Soaring gas prices as winter approached raised the possibility that larger volumes of crude oil could be used for power generation, likely leading to increased demand.

Many market watchers have predicted that the Saudi Arabia-led OPEC + alliance will have to consider increasing its planned output by 400,000 barrels per day in November to curb price increases – the alliance predicting that demand could exceed supply over the next two months. This follows a sixth straight week of gains for New York futures contracts despite slipping to $ 75 a barrel last Friday.

With little hope that Iranian oil will enter the market in 2021 and a low level of investment to rapidly increase production from US shale producers, an OPEC decision to increase supply in the market au- beyond the initial plan could stabilize the rise in prices.

It is (not) a gas in Europe

Europe is currently facing a crisis. There is a shortage of Norwegian gas, coal and water, all of which are used to generate electricity. This shows little sign of slowing down with increasing demand for electricity as winter arrives and the continent continues to recover from the pandemic.

This growing demand has caused a sharp rise in prices of up to 12% in Dutch futures contracts for first month natural gas and its UK equivalent. The price of Brent crude has also hit an annual high, surpassing the $ 80 mark recorded in October 2018.

The effects of this increase in gas prices were felt across Europe. In the UK, some small power supply companies have close. Electricity retailers in France are also struggling to keep up with demand and are set to pull back, with the government promising to block any increases until next spring.

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China faces coal woes

The Asian power, China, is not left out in this energy crisis, despite the Evergrande and Supply Chain situations that make the headlines. Rising global coal prices combined with shortages have resulted in reduced electricity consumption in much of mainland China.

Coal is the main source of electricity supply in China and around the world. The growing demand for electricity in the wake of the pandemic has not been met by increased supply. This has produced a net effect of energy shortage, sharp price increases and production delays in China.

The challenge of sourcing in China is due to several factors; global coal shortages, import restrictions, utility pricing and CCP emissions targets.

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Less pollution is not a solution

Energy company SSE plc said that the poor weather conditions observed this year have hit the renewable energy sector hard. The company’s renewable energy production during the spring and summer was only one-third of its projected production.

Light winds, dry weather and high gas prices have combined to drive up energy costs. SSE reported that wind and hydroelectric production between April 1 and September 22 was at least 32% below their planned target. This already equates to an 11% reduction in its full-year production forecast. The summer was one of the least windy and driest on record in over 70 years.

Do you think winter will worsen the current energy crisis? Let us know if you’re affected (or not!) In the comments below:

About the Author

Tim Fries is the co-founder of The Tokenist. He has a BSc in Mechanical Engineering from the University of Michigan and an MBA from the Booth School of Business at the University of Chicago. Tim was a Senior Associate in the investment team of RW Baird’s US Private Equity division and is also a co-founder of Protective Technologies Capital, an investment firm specializing in detection, protection and protection solutions. control.

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Felix J. Dixon