ARKANSAS, Nov 29 (Future Headlines)- From mid-2021 to late 2022, Europe and parts of Asia faced an energy crisis characterized by surging oil, gas, coal, and power prices. The crisis, exacerbated by Russia’s invasion of Ukraine and subsequent sanctions, led to disruptions in energy supplies. However, as of 18-24 months later, the acute phase of this crisis has subsided, with energy inventories stabilizing, and prices gradually returning to long-term averages. This comprehensive analysis explores the multifaceted recovery in Europe’s energy markets, shedding light on adjustments in oil, gas, and coal sectors, while considering global implications.
The crisis’s acute phase has concluded, with energy inventories reaching comfortable levels and prices trending toward long-term averages. Markets have adapted to the disruptions, signaling resilience in the face of unforeseen challenges.
U.S. domestic crude and condensates production surpassed its pre-pandemic peak in August 2023, contributing to market comfort. Commercial crude inventories in mid-November were above the prior ten-year seasonal average, indicating ample supply.
Brent crude futures, at $82 per barrel, align with the median since the start of the century after adjusting for inflation. Brent’s six-month calendar spread, at a modest backwardation of $1.57, reflects market adaptation and stability.
Fears about over-production and potential oil inventory accumulation replaced concerns about insufficient supplies. Saudi Arabia and OPEC+ partners adjusted output to prevent an incipient inventory build.
U.S. gas inventories consistently exceeded the prior ten-year seasonal average since February 2023. Record export rates indicate a surplus, leading to close-to-lowest levels of U.S. gas futures prices in 30 years.
European gas storage reached record levels post-warm winter and reduced industrial gas consumption. Germany’s energy-intensive manufacturing production declined by around 17%, impacting overall gas use.
Inflation-adjusted futures prices for the year ahead in November 2023 averaged 48 euros per megawatt hour, down from crisis levels in August 2022. Although still high, prices are no longer at crisis levels and are anticipated to retreat further in 2024.
Coal demand fell sharply due to increased gas supplies and ramped-up mine production. China, the largest coal miner globally, significantly increased output in 2022 and continued this trend in the first ten months of 2023.
Real year-ahead prices for coal delivered to Northwest Europe averaged $112 per ton in November 2023, a substantial decrease from the peak in September 2022. The coal market experienced a profound adjustment, with prices aligning more closely with historical percentiles.
Each energy market experienced a unique adjustment process, emphasizing faster production growth and slower consumption increases. Factors such as hydro production in Brazil, an unusually mild autumn in Northwest Europe, and increased renewable generation contributed to the overall adjustment.
The common denominator in the adjustment process was the unprecedented scale of price rises in 2021 and 2022. This accelerated the adjustment, prompting a relatively short-term, albeit brutal, transition in production, consumption, and inventories.
Editing by Sarah White