OilPrice.com notes - Dec 17

dan_s · Post by **dan_s** » Fri Dec 17, 2021 3:26 pm

Friday, December 17th, 2021

Oversupply has been one of the main talking points in oil markets in recent months, and now it seems that it will soon be upon us. The softening of Asian oil demand, triggered by China’s zero-COVID measures and Beijing’s continued clampdown on independent refiners in Shandong, has curbed the enthusiasm of market bulls while Brent is now flirting with contango, a sign of looming oversupply. This being said, there remain some upside factors, primarily the low level of inventories globally - which are now roughly at March 2020 levels. With Omicron cases doubling daily in European countries, however, it seems supply is going to shoot past demand. Against this background, ICE Brent slid to $73 per barrel, whilst US benchmark WTI was trading at around $70.5 per barrel this afternoon.

Get Ready for Some Chinese Buying. With China seeing its electricity mandates eased, coupled with the recent strengthening of the Dubai complex, opened up crude arbitrage from Europe, Africa, and the Americas into the Asia Pacific region, implying that the currently meager flows (down 30% y-o-y at 2.8 million b/d) should see an uptick in Q1 2022.

Germany Doesn’t Expect Nord Stream 2 Launch Soon. Germany’s energy regulator BNetzA said it does not expect the Nord Stream 2 gas pipeline, owned by Gazprom (MCX:GAZP), to be launched in the first half of 2022, sending European gas prices to all-time highs.

Spiking EU Gas Prices Push Up Asian LNG. Much to the chagrin of Asian LNG buyers, soaring spot gas prices in Europe - trading some $12 per mmBtu above Asian LNG at $48/mmBtu equivalent - have been inevitably pushing up spot LNG quotes in the Asia Pacific, already at $45 per mmBtu.

Global Coal Demand To Rise 6% This Year. According to IEA forecasts, overall coal demand is set to increase by 6% in 2021 (to a total of 7.9 billion metric tons), largely driven by thermal coal becoming an even more important power generation source globally on the back of surging gas prices.
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MY TAKE: As you can see from the astronomical prices for natural gas in Asia & Europe and the spike in demand for coal, this world has an energy shortage that could soon become an energy crisis. This is what happens when idiots are setting energy policy. The recent pullback in oil prices is just a "pause" until it sinks in that the Omicron Variant is not going to kill us all.