EU WILL GET $105/BARREL

There is nothing much to be happy about for crude coming down to $85/barrel since very soon it will be around the range of $100 to $105/ barrel and much before that India will face some international political pressure for not buying crude from Russia.  But if the world faces any Covid-type situation crude might plunge below $50 so as the global economic growth and stock markets across the globe.

 Currently, most of that oil in that build came from the Strategic Petroleum Reserve but as soon as these reserves get depleted and refiling activity begins the demand for crude will increase and vice versa the price. The prices came down due to China's lockdown and slowdown fears, but these are short-lived rumors since demand can change at any point.  Once October kicks in we will find the heat of the OPEC decision and winter speculation rising up. The threat price will be more form geo-political pressure created by U.S and the EU is haste to punish Russia before December 5th which will play its cards.

The complete gas stoppage of Russia for the EU will bring significant demand for crude oil in the coming months.   LNG price will be decided more by China in terms of demand coming from them in winter further how strong the EU winter will be is also going to decide the crude price. This demand play will decide the fate of crude oil.  Till now all the decisions and rationales of calculations are based on the that it will be moderate winter for the EU but if we have a winter like 2012 where 20 billion cubic meters of gas was consumed then we will find crude to have a very high price as the consumption will increase being an alternative to crude.

 The EU problem will not get over even in the 6 months since they will have a summer next year and the current storage will not last till that time. Further moving from gas to alternative energy is a long cakewalk. Hence crude is the only immediate support for the EU in the coming days. As per the Dutch TTF gas contracts 272 Euro per megawatt. This has gone up by 400% in just one year and will go up to 500% by this winter, pinching the EU citizens. The biggest wrong decision being adopted by the EU is cutting down industrial use of gas which means no manufacturing and more job loss and a stronger recession. Now this decision would be short-lived since the EU cannot manage the industrial gas cut-down strategy for long hence dependency on crude increases.

It is not the EU alone if we look at the data we find that volumes withdrawn from the Strategic Petroleum Reserve were 7.5 million barrels, which dropped the total inventory to 442 million barrels, the lowest level since 1984. The U.S. oil and gas rig count fell by one last week to 762, the third-straight weekly decline.

Deutch Bank is saving electricity to the tune of 49000 light bulbs for an hour whereas supermarkets have started using dim lights in their hops for energy saving or rather unable to pay huge bills. Many companies have adopted various strategies to save money from high energy costs like cutting down on times of opening and closing up shops and businesses. This is the very place where demand for crude will grow significantly. In order to save the EU economy from recession, they have to increase their dependency on crude and this is the place where demand and prices will increase.

The most shocking thing is that the global oil demand from gas to oil switch will cost more than 80% in the next 6 months. Gas is currently 5 to 6 times more costly than crude now and this spook the demand climate going ahead.  It has been found that the EU's total gas and power costs may rise to $1.4 trillion from $200 billion before the war. Out of this 70% belongs to Electricity and 30% is gas which is equal to 8% of the region’s economic output.

If anyone thinks that packages like the UK will help out its citizens during winter and over the few years well the 150-billion-pound box is twice the covid pandemic package. This means balance sheets will swell with debt and currencies will remain volatile giving less sleep to the EU and the world over the few years.

But the whole demand increase of crude will not come from the EU alone but from Asian countries too where it is expected that gas to oil demand will reach 47% in Q3 2022. Further Demand for switching gas to oil is 43%  of the total.

Energy transition will reshape the control of the economies in this decade. We will witness expensive volatility before this transition and might face higher prices of the extensive supply as a token of punishment to become energy independent.EU & UK have more recoverable shale gas reserves than Australia or Russia but this exploration will cost climate and also will take significant time to reduce the energy dependency. Now the fight will be over climate and the search for alternative energy source investments