opec

Brussels forecasts lower gas prices, concerned about oil

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The European Commission has projected energy prices falling at a slower rate for the remainder of 2023 before rising again in 2024, especially for oil prices.

Brussels made its forecast before OPEC+ announced it would extend production cuts until the end of this year, which pushed the price of Brent up to a level of 90 dollars per barrel.

As for electricity and natural gas prices, the European Commission report notes prices have fallen since spring.

For the third quarter of 2023, the European Commission expects price levels to be 21 percent lower for natural gas and 25 percent lower for electricity, compared to its previous estimates.

Brussels has forecast an electricity price average of 109 euros per MWh in 2023 and 140 euros per MWh in 2024, down from 130 and 160 euros per MWh, respectively, in its spring report. This revision was attributed to a rapid expansion of liquefaction terminals on the continent and full gas storage facilities.

The Brussels report projects economic growth of 0.8 percent this year in the Eurozone and the EU, slightly below a previous 1 percent growth forecast, while economic growth in 2024 is seen reaching 1.3 percent, down from 1.6 percent projected in the spring report.

The German economy, Europe’s biggest, is now seen contracting by 0.4 percent this year, rather than growing 0.2 percent, as was previously projected.

EU industrial production fell by 1.1 percent in the second quarter of 2023, compared with the previous quarter, despite falling energy prices, the Brussels report noted.

Crucial OPEC meeting Sunday, amidst Moscow-Riyadh dispute

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OPEC +, the Organization of the Petroleum Exporting Countries, plus allies led by Russia, are scheduled to hold a crucial meeting this Sunday, just days after Saudi Arabia’s stern warnings to market players involved in short-selling activity, as well as amidst an output policy row that has broken out between Riyadh and Moscow.

Journalists have not been invited to the forthcoming meeting, a development that has surprised global media outlets.

The latest OPEC meeting comes after the organization caught the internationally community off guard by announcing, in April, it would make further cuts in oil production.

At the time, the move drove up oil prices by approximately 9 dollars per barrel, to levels over 87 dollars per barrel. Prices eventually eased off, the Brent oil price falling as low as 70 dollars per barrel.

The oil market’s volatility makes it impossible to predict what OPEC’s next move could be. Signs offered by major producers as to what may follow remain ambiguous and could be interpreted in a number of ways.

Also, Saudi Arabia and Russia are currently embroiled in a dispute over the organization’s output policy. Riyadh has expressed disappointment over Moscow’s breach of an OPEC agreement to cut output. Saudi Arabia wants oil prices to rise to between 80 and 81 dollars a barrel.

Riyadh has also been angered by the short-selling practices of speculators, seeking to manipulate markets for lower oil prices and profitable selling.

 

Natural gas price increases seen as inevitable following oil-price rally

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A rise in natural gas prices appears inevitable as a result of the sharp increase in oil prices prompted by a drastic cutback in oil production decided on by the eight-member OPEC+ group.

Dutch TTF gas futures rose by as much as 30 percent over the past ten days before easing.

TTF gas futures for May are priced at 45 euros per MWh, but rise for ensuing months. July futures are currently at 46.3 euros per MWh, August futures are at 47.1 euros per MWh, September futures are at 48.6 euros per MWh, October futures are at 52 euros per MWh and November futures are at 57.9 euros per MWh.

In comments to energypress, local energy company officials shared concerns of a new round of gas price increases, noting conditions are currently fluid but will clear up over the next few weeks.

The impact of the rise in oil prices is already being felt at retail level in the US, while Europe is also bracing for an ascent as the price of crude shapes the price of natural gas by a coefficient of at least 50 percent, according to IEA.

If applied to its full extent, as of May 23, the OPEC+ decision to slash oil production could have greater impact on natural gas prices than Russia’s war in Ukraine, leading analysts, including Tom Kloza, global head of energy analysis at OPIS (Oil Price Information Service), have noted.

 

Elevated heating fuel prices seen, OPEC decision impact awaited

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Heating fuel prices are likely to begin the winter trading season, starting October 15, at an elevated level of between 1.50 and 1.55 euros per liter, market officials have indicated.

Heating fuel subsidies, to be offered to households based on income criteria, stand to lower heating fuel prices to between 1.15 and 1.20 euros per liter.

Pricing predictions for winter remain uncertain as petroleum firm officials are awaiting the impact of a recent OPEC decision to cut back on output before finalizing their calculations. Market developments this week will be instrumental in the level of heating fuel prices to be set by petroleum firms.

If confirmed, heating fuel prices of between 1.50 and 1.55 euros per liter would place struggling households under even greater financial pressure. Fuel-based heating has been seen as a favorable option by many households for this coming winter, given the hefty electricity price increases. However, heating fuel prices of between 1.50 and 1.55 euros per liter would act as a deterrent for many households.

Gas heating, taking into account a gas subsidy of 90 euros per thermal MWh offered by gas company DEPA Commercial, is expected to cost 0.11 or 0.12 euros per KWh in October, sources informed.

At these levels, gas heating remains a lower-cost alternative to fuel-based heating for households not eligible for heating fuel subsidies.

Fuel demand dives, heating fuel sales supported by low prices

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Fuel consumption, down to unprecedented levels as a result of the lockdown, has produced a nationwide gasoline sales drop of 70 percent this month. The slide in gasoline sales has been even steeper in urban centers, falling by as much as 80 percent.

The reduction in demand for diesel has been milder, limited to levels of far less than 50 percent as a result of ongoing agricultural activities around Greece.

On the contrary, heating fuel demand has stood firm against the wider downward trend, supported by extremely attractive prices that have encouraged consumers to stock up as early as now for next winter.

Heating fuel prices have registered a 24 percent drop since the beginning of the year, falling to 0.815 euros per liter from 1.07 euros per liter.

The heating fuel price reduction in Greece is far smaller than that of international oil prices because a considerable percentage of the local retail price is comprised of taxes.

The heating fuel season ends at the end of April, meaning consumers have about two more weeks to place orders at the current prices.

An OPEC agreement reached last week for a 10 percent reduction in output considerably increases the likelihood of a price rebound. The production cutback puts an end to the Saudi-Russian price war.

Households, businesses, inflation impacted by OPEC-sparked fuel hikes

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Sharp price increases of auto and heating fuel, as well as natural gas, are impacting household and business costs as well as the inflation rate, data released by ELSTAT, the Greek statistical authority, has shown.

The price of natural gas registered a 13.1 percent price increase compared to November last year, diesel was up 11.3 percent, and heating fuel rose 14.7 percent, the ELSTAT data showed. On the contrary, the price of gasoline fell by 3.8 percent compared to the equivalent month a year earlier.

The price shifts have been attributed to international crude and petroleum product prices, shaping prices set by refineries and traders.

Subsequently, transportation and operating costs for businesses, determined, to a large extent, by fuel price levels, have risen considerably.

Further fuel price rises are expected as a result of a decision by OPEC members and other oil-producing countries to reduce output by 1.2 million barrels per day.

The price of Brent Crude Oil rose to more than 63 dollars per barrel following the announcement of the cutback by oil producers last Friday before correcting to less than 60 dollars in the days that followed.

 

OPEC members divided ahead of crucial Vienna meeting next week

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OPEC member ministers will meet in Vienna next week to decide on whether to extend an older output cutback agreement involving themselves as well as non-member countries, including Russia.

With the price of crude currently up to nearly 63 dollars a barrel, a two-year high, it could certainly be said that the agreement has delivered as intended, even if with considerable delay.

Ending the agreement would definitely prompt a crude oil price collapse to levels of around 50 dollars now that the market has grown accustomed to the output cutback measure.

Given this factor, it could be presumed that the price-supporting agreement will be extended. Even so, rumors have spread that certain OPEC members and Russia want the measure lifted in March, or, alternatively, are demanding a schedule specifying its end.

The steadly flow of contact between OPEC member ministers in recent months, via a virtual chatroom, has now stopped, according to a Reuters report published yesterday. Instead, cartel members are reassessing their positions individually, the report informed.

The intensified geopolitical rivalry between Saudi Arabia and Iran, which has resulted following the latest developments in Lebanon and Yemen, is a divisive factor that threatens to undermine the level of cooperation within OPEC. So, too, is Qatar’s rift with Saudi Arabia and the United Arab Emirates.

Such factors will make it more difficult for members to cooperate on next week’s crucial decision. Disagreements between OPEC members have existed in the past, but a breakdown in communications ahead of a crucial meeting is unprecedented, as was pointed out in the Reuters article.

 

Last winter’s OPEC production cutback falling short of objectives

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It may be too soon to measure the impact on the international crude market of an OPEC decision reached last winter to cut back on output, but current indications suggest the move’s objectives are not been reached.

OPEC, backed by Russia, decided to lower output with the objective of diminishing increased international crude reserves and offering support to oil price levels. The OPEC initiative also had another strategic objective in mind, to maintain long-term control for the cartel, or, more specifically, Saudi Arabia, over the international market, now subject to changing forces.

Several months on, output has been restricted by 1.2 million bpd and oil reserves have been reduced at a slower-than-expected rate, as higher prices ended up prompting the US to reinforce its output.

Two days ago, the Brent index stood slightly above 50 dollars, the level it was at on November 29, 2016, a day before the OPEC agreement was signed. Yesterday, the Brent index fell to just under 50 dollars.

Latest data has shown a rise in the number of oil drilling projects being conducted in the US. This is not good news for Riyadh, especially given the support being provided by the USA’s newly elected Republican administration, already moving to dismantle environmental restrictions as a means of boosting American output.

OPEC members are scheduled to meet next month to decide on whether to extend the cartel’s current output cutback, a six-month agreement. Analysts confidently forecast a renewal of the deal as, otherwise, oil prices could collapse.

From a wider perspective, the overall market conditions of recent times have served Saudi Arabia’s interests well. Low oil prices of the past two years or so have restricted international oil industry investments in new production to historic lows.

Even so, Riyadh cannot draw any conclusions for a few more years. Saudi Arabia needs a further boost amid a changing environment in which the role and impact of OPEC in the international oil market has clearly changed. Long-term prospects suggest the cartel will need to try and salvage whatever it can from a glorious past.

 

 

Trump challenges OPEC in bid for US energy independence

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Two opposing forces are currently impacting the global oil market but offsetting each other’s impact to maintain prices at slightly over 52 dollars per barrel.

On the one hand, an agreement between OPEC members to curb output is being successfully implemented as 1.5 million barrels are already being withdrawn on a daily basis. The agreement’s objective is to reduce production by 1.8 million barrels per day. If fully implemented, the agreement will lead to a global oil production reduction of around 2 percent. On the other hand, the just-inaugurated President Donald Trump’s energy policy promotes increased US shale oil output as a means of ending the US’s dependence on OPEC for energy.

Trump’s “An America First Energy Plan”, just published on the White House website, promises to support a shale oil and gas revolution, which, besides offering energy independence, would boost energy sector employment. According to the plan, the US, sitting on oil and gas reserves worth 50 trillion dollars, will utilize this potential.

Trump’s plan for US energy independence is widely regarded as being overambitious. US production will need to replace current imports amounting to three million barrels per day.

The new US president’s energy plans are not new. A previous Republican administration had sought to reduce US oil imports from the Middle East by 75 percent by 2025. OPEC reacted, crucial geopolitical balances were placed at risk, and the plan ultimately failed. A rift between USA and OPEC in the current era is made even more complicated by the need for a partnership to combat terrorism.

In recent weeks, US production has increased by 40,000 barrels per day. If US output continues rising, it will end up offsetting the market impact of OPEC’s policy to curb production. Prices will begin dropping again.

These contravening policies could lead to new war for greater oil market shares. If US output continues to increase, OPEC members could reconsider their decision to limit production and begin pumping out more, which would prompt price reductions.

Analysts forecast a stabilization of prices at a level of between 50 and 60 dollars as the likeliest scenario.

Russian energy minister Alexander Novak yesterday reiterated his support for Trump’s energy policy, noting that Moscow is satisfied by the Trump administration’s elevation of energy matters as a top priority. Novak expressed hope that the US and Russia will soon meet again at the negotiating table.