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    OPEC sees natural gas prices driving demand for refined products

Summary

Low storage levels led to a ‘surge across the board’ in commodity prices, economists at the oil-producing group said.

by: Daniel Graeber

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Complimentary, Natural Gas & LNG News, World, Gas to Power, Political, OPEC, Market News

OPEC sees natural gas prices driving demand for refined products

Economists at the Organisation of the Petroleum Exporting Countries (OPEC) said October 13 soaring natural gas prices should drive demand for refined petroleum products higher.

In its October market report, the cartel noted that the ongoing rally in commodities is pushing economies of scale, particularly those in Europe, to switch from natural gas to other fuels in a move to save costs.

“Should this trend continue, fuels such as fuel oil, diesel, and naphtha could see support, driven by higher demand from power generation, refining and petrochemical use,” the economists wrote.

The European winter gas season officially started October 1 and the region has entered it with the lowest natural gas storage levels in over a decade. As a result, OPEC economists said that electricity and refining costs have all moved higher.

“Energy commodities experienced a surge across the board, with natural gas and coal prices reaching record highs in Europe and Asia amid lower-than-average storage levels that fuelled concerns about potential shortages should winter temperatures be colder than usual,” OPEC’s report read.

Higher refinery utilisations, however, could create some headwinds for natural gas prices, even if there is a pick up in winter-driven demand. Nevertheless, OPEC economists warned that the rally in natural gas prices could have a knock-on effect on broader commodities.

“Worries about the risk of natural gas and coal shortages in Europe and Asia boosted sentiment for an additional increase in oil demand as a substitution fuel,” they wrote.

Commodity prices were lower across the board, however, in response to OPEC’s downward revision to global oil demand.

“The ongoing robust growth in the world economy continues to be challenged by uncertainties, such as the spread of Covid-19 variants and the pace of vaccine rollouts worldwide, as well as ongoing global supply-chain disruptions,” the OPEC economists observed.