We’ll explain. There have been a slew of energy challenges around the world. In China, big companies are facing quotas on how much power they can use. In Europe, natural gas prices are up 1,300% since May 2020 due to low inventories and a cold winter forecast. And in England, the driver shortage and panic buying have left many fuel stations on empty.
Are these crises related? While very similar, each shortage has its own cause. China’s power problems relate to 4-year low coal inventories and limited imports, which is causing prices to rise. Europe is also facing low inventories due to pandemic-induced supply chain issues, but they lack natural gas rather than coal. Gulf Coast outages have propped up fuel prices in the US, forcing Gulf refiners to import more crude oil to keep up. Britain is facing an acute lack of drivers following Brexit, so gas stations are struggling to get product despite plenty of available fuel supply.
What these challenges have in common, though, is that they all create more tension and uncertainty for energy markets. Those emotions can absolutely trigger panic buying, regardless of market fundamentals. Moreover, if natural gas and coal are unavailable, some countries may resort to the next available fuel source – oil – to generate heat during a cold winter. That could substantially increase oil demand and lead to big price swings this winter. While the power crisis has not directly impacted oil prices yet, a cold winter may lead to some hefty price swings. Already, several major banks are predicting $90-$100/bbl crude at some points this winter, with at least one trader betting on $200/bbl oil.
Nervous about price volatility? Now may be a good time to lock in a short-term fixed-price contract for the next five months. Click here to learn more, or reach out to your Mansfield Sales Representative for pricing.