Oil price: mild European temperatures keep the price of fossil fuels low

 

Europe gas prices in autumn

European gas prices that have been steadily rising in the last two weeks played a definite role in stopping the crude oil from plummeting due to gloomy economic developments across the world.

With the unseasonably mild temperatures in the continent, mercury rising into double digits on many days, the demand for LNG, liquified natural gas, has not gone exponential yet, despite the concerns to the contrary; in addition, the countries in the EU managed to fill up their gas reserves from myriads of sources and consumers in the bloc heeded the calls from the leaders to cut down on the use of gas in their households.

The temperatures in some parts of Europe are so unusually high that it is called the onset of the 'second spring', as the conditions have resulted in plants in bloom again! In Wales, for instance, the highest reported temperature in November is 160C.

Since the pattern of warmer temperatures has been a crucial factor in keeping the price of LNG at the current levels, any drop in temperatures could potentially reverse the trend at any time in the next few weeks; it is highly unlikely that temperatures in Europe will remain in double-digits in the first two months of the next year. 

That means, the prices of both LNG and crude oil may rise in the next few months, unless a breakthrough is made on the warfront in Ukraine. In such a scenario, the calculations of the European leaders regarding the use of fossil fuels remain to be tested. 

It is surprising that the price of crude oil could not be revived even by the positive news from the US crude stocks for two consecutive weeks - apart from getting a short-lived spike, of course. 

EIA oil stocks


The proposed price cap on Russian gas, meanwhile, has not gone beyond 'exploratory phase' - as yet; Russia is reiterating its threat to cut off the supply of gas to the countries that agree to impose it.

Against this backdrop, the European Union does not appear to be rushing to toe the line of the US over the matter; the opposition of some member states against a price cap on Russian gas does not make it easier for the EU to work in unison on the issue.

As for the supply of crude oil, the OPEC+ seems to be sticking to the production cuts announced in November, despite the reports about a change of heart by its de factor leader, Saudi Arabia.

The reluctance of the OPEC+ to increase the production, to some extent,  resonates with the evolving politics in the US: with a Republican-controlled House of Representatives in power, the Biden Administration may not be able to carry on as usual - at least on the energy front. 

If the Congress removes the obstacles against drilling, for instance,  there is a strong possibility of boosting the supply of crude oil that could not reflect well on the Middle Eastern producers.  In this context, the anxiety of the members of the OPEC+, when it comes to the sensitive production cuts, is fully understandable. 

 
 

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