LNG cost affecting oil price
The rising cost of Liquefied Natural Gas (LNG) is raising the bar on the cost of crude oil. Consequently, experts in the sector are predicting that this trend may increase global demand for oil in the days ahead.
As at the weekend, it was being speculated that the commodity may head for the above $80 per barrel mark.
Bloomberg reports that oil held gains near the highest since 2018 amid a global energy crunch that’s set to increase demand for crude, while stockpiles are falling from the United States to China. It noted that Futures in London traded above $77 a barrel, heading for a third straight weekly increase. The surge in LNG natural gas prices, it observed, is expected to force some consumers to switch to oil, tightening the market further.
In an interview with Bloomberg, the Chief Executive Officer, Vitol Group, Russell Hardy, explained that the ensuing development of higher gas prices may have led to an energy crunch which is now driving a rush for other fuels. If this persists, he added, it could lead to a global crude demand by an extra 500, 000 barrels a day, thereby forcing OPEC+ producers to add more crude oil supply into the market. Vitol Group is the world’s biggest independent oil trader.
“Oil is most likely headed above $80 a barrel, partly as higher gas prices boost demand,” Hardy said.
His position echoes the views of Goldman Sachs Group Inc., which is predicting higher crude prices. Traders have been assessing the likely impact of a tightening natural gas market on the broader energy complex over the coming months.
While global oil demand is still about four million barrels daily below 2019 levels — mainly due to lower jet-fuel consumption, the gap is expected to narrow steadily, with Hardy predicting demand to return to 2019 levels by the middle of next year.
The OPEC+ coalition is “micro-managing” the oil market, and will use its planned output increase to keep prices in check. It is finely balanced for the next six months. We’re not worried about demand in the long run, we know it’s going to come back steadily,” Hardy said.
Oil has rallied recently after a period of Covid-induced demand uncertainty, with some of the world’s largest traders and banks predicting that prices could climb even further because of the energy crisis. Global crude consumption could rise by an additional 370,000 barrels a day if natural gas remains elevated for an extended time, according to the Organization of Petroleum Exporting Countries (OPEC).
“Underpinning the latest bout of price strength is a tightening supply backdrop,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd.
