Low stockpiles of most fuels, and limited time left to replenish stocks before the peak demand season, has left consumers around the world increasingly exposed to a supply crunch should we end up with a colder than normal winter. With gas and coal trading at very elevated levels we are now seeing the next stage of this energy crunch with crude oil prices rising as well. Brent crude oil trades above $80 for the first time in three years on the rising prospect for increased substitution demand for oil powered generation.
That additional increase in demand for crude oil and fuel products occurring at a time when global stock levels of crude oil are falling amid a continued post-pandemic recovery in demand and after hurricane Ida supply disruptions more than offset the ramp-up in OPEC+ production since July.
The latest market to surge higher is US traded natural gas prices which during the past four days has surged by 30% to a seven-year high at $6.25/MMBtu. The global supply crunch will drive increased demand for US LNG exports, thereby also raising concerns about tightening inventory levels in the US. The March-April 2022 spread, also called the Widowmaker given its unpredictable and volatile behavior has surged to $1.54, the highest for this time of year since 2005. The spread reflects the market view on how tight supply will be at the end of winter, before spring arrives and injections into storage resumes.