ENERGY MARKETS TUMULTUOUS

Ayear on from Russia’s invasion of Ukraine and energy markets seem to have weathered a volatile situation — a “global energy crisis” says the International Energy Agency — to establish a new normal, albeit a delicate one. But they remain vulnerable to cross currents of political tension, an unpredictable global economy, and erratic demand.

Crude prices, which spiked to over US$120 per barrel after the invasion, have eased to around US$70-80 per barrel for U.S. marker West Texas Intermediate, amid ample stocks and still-tepid demand.

And gas prices, which threatened even more volatility given Europe’s reliance on Russian supplies, have settled from a peak of €340 per MWh to €40/MWh for Dutch marker TTF. A mild winter and increased liquefied natural gas imports, chiefly from the U.S., left Continental markets with ample gas in storage as winter ended, easing supply fears for this summer at least. Demand destruction was also a factor, with OECD European consumption in 2022 down by 70 billion cubic meters, or bcm, nearly 15 percent, on the year. But “the global gas balance is fragile and a number of uncertainties in 2023 exist,” cautioned the IEA.

In oil, the IEA expected demand to bounce back and “accelerate sharply” in 2023, to reach a record 102 million barrels per day. Oanda senior market analyst Craig Erlam saw potential for prices rising in tandem, saying “if most countries avoid recession, then coupled with a strong Chinese recovery, we could see prices rally from here,” but noted that there is “immense uncertainty around the economic outlook.”

Erlam saw potential for OPEC+ countries to meet recovering demand, having trimmed output by 2 million barrels per day last year: “There’s certainly scope for it to meet additional demand, but that ultimately depends on how strong that demand is.” The IEA sees enough output for the first half of the year as OPEC+ production bounces back and U.S. and Canadian output recovers from winter storms, but warned that the market could be tighter in the second half as Chinese demand and seasonal trends boost demand to record levels.

The IEA’s outlook for gas is for a slight decline in 2023, with OECD Europe seeing a fall of 3 percent as consumption by the gas-fired power sector is displaced by greater renewable and nuclear power output. The agency saw U.S. gas demand easing by around 5 percent in 2023, but Asian demand rising by 3 percent on recovering Chinese demand. For gas supply, the great unknown is how much gas will come into Europe from Russia. Exports to Europe from Russia fell by 50 percent in 2022, putting “unprecedented pressure” on both European and global gas markets, the IEA said. Falls were even greater