Oil Price: will high gas prices prop it up against falling?


Soaring gas prices

Although the price of WTI has been remaining below $100 for this week, a significant divergence in price between two major benchmarks, WTI and Brent, continue to baffle the analysts and investors alike.

The fall in price, however, has not made a perceptible impact at pumps in Europe at present; it is far above what it was at the same time last year. That means, the political elite are not in a position to breathe a sigh of relief while holding the nostrils just above the surface of the ocean of disturbing economic indicators.

It is premature to assume that the fall of oil prices will continue unabated right down to the level that it was this time last year; the price of LNG, liquified natural gas, meanwhile, has more than doubled in a span of one year and there is a strong tendency that industrialists may turn to oil as a substitute for gas, if the price of the commodity remains at this level.

European governments, perhaps, never anticipated that Russia would play the 'gas card', assuming the latter would refrain from doing so because of the estimated loss of vital revenue. It is not happening, though; on the contrary, Russian coffers are swelling at an accelerated rate, when the West hoped the opposite.

In short, European governments are slowly realizing the bitter truth: it is not easy to find substitutes for Russian gas which is more or less on your their doorstep.

If they took Qatar, the world's top LNG exporter, seriously when it warned against turning away from Russia when it comes to importing its gas, the European government would not have been in the precarious situation that they are in now; the former explicitly said that it could not be a substitute for Russia in the event of Russian gas being banned.

Not only are EU members running helter-skelter in finding the reliable sources, but also appear to be going  back on their 'green commitments' that they publicly made last year amidst fanfare; they are now asking for oil and gas from African countries such as Zambia and Nigeria, sensing the danger ahead in two to three months when the colder season sets in.

Although the US helped Europe to cope with gas shortages, it may not be able to do so in the forthcoming winter months at the expense of the needs of its own citizens. 

In short, the challenges simply will not go away: some members of the EU even openly discuss about rationing gas, whereas some members vehemently oppose it fearing social implosion; there are already a number of fault lines crisscrossing the union and members do not want any new policy crisis to creep in.

All in all, the volatility in the commodity markets is here to stay for months to come and so is the cost of energy production across the world.

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