Fears of an oil glut are receding, as stronger demand and curtailed supply are set to tighten the market and lift prices. It’s going to be a good winter for oil producers, but a further hit to consumers who are already reeling from soaring gas and electricity costs.
The surge in natural gas prices, which has seen the costs of both liquefied supplies and pipeline deliveries to European markets jump to records, is starting to have knock-on effects on the oil market. Consumers are seeking to switch away from pricey natural gas and to marginally less expensive oil.
Vitol Group, the world’s biggest independent oil trader, expects fuel switching to boost oil demand by half a million barrels a day this winter. Consultants Facts Global Energy see a similar increase, with Chinese trucks, Asian power generators and oil refineries around the world all seeking cheaper alternatives to the gas they now use. The Organization of the Petroleum Exporting Countries sees a slightly smaller impact, estimating the additional demand over the next two quarters to be 370,000 barrels a day.
Deutsche Bank AG sees soaring prices for gas, electricity and coal creating the potential for fuel switching in power plants during the coming winter, although it notes that capacity to do that in Europe is limited.
These numbers may not seem huge, but oil demand will get yet another kick in the coming months.
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