Energy Update

June 27, 2022

1 mins read

The Brent crude oil price rose by 8.6% week on week (w-o-w) on the week of the 15th of June to USD 118.3/Bbl, up 196% year-on-year (y-o-y). The price increased in June due to ongoing supply concerns, which continue to heighten market uncertainty. The Russia-Ukraine geopolitical conflict remains the main driver for crude oil prices, alongside firm demand.

The price of EU natural gas rose by 13% w-o-w up to the 15th of June 2022, reaching GBP 230.4/100 Therm, up 9% month-on-month (m-o-m) and 123% y-o-y. Prices continued to rise in line with supply curtailments and ongoing market uncertainty as Russia continues to reduce gas supplies to the EU. On the 22nd of June, the International Energy Agency (EIA) warned that the EU should prepare for a ‘total shutdown’ of gas supplies before winter. This will likely result in higher prices as supply concerns are exacerbated, and the EU are unlikely to be able to make up for the shortfall in time for winter. EU countries are searching for alternative supplies, including LNG from the US and gas from Norway and Azerbaijan.

The EU aims to build up 80% of storage capacity before this winter to support demand and ease the upward price momentum. However, Gazprom (Russia’s largest multi-faceted financial institution) has tightened supplies to the EU due to the refusal to pay in Russian roubles, heightening supply concerns. According to market sources, Europe’s total storage caverns are currently only 57% full, much below the target of 80% to be met by November 2022.

The price of US natural gas also rose in May 2022, up 25% m-o-m, and 179% y-o-y to USD 81.0/100 Therm. The lower-than-average natural gas inventories have supported prices due to growing demand, which outpaced production. Additionally, hotter than average temperatures across the US have driven the usage of power generators to cool buildings. Natural gas is used to generate electricity, and thus demand has risen compared to 2021 as a result.

Alice Witchalls
Alice Witchalls

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