With a large part of the world caught up in an energy crisis, there is one, very important factor over which mankind has zero control. The weather. According to meteorological reports from AccuWeather, temperatures in large parts of the U.S. are about to dive 10-20 degrees Fahrenheit below average, with possible first snow in some parts around the Midwest and the Great lakes. This cold spell could spark a turnaround in natural gas prices, which have been on a steady decline since peaking in August, OilPrice said.
Electricity prices along the Atlantic coast of the United States are set to increase 50-60% year-on-year as gas supplies become squeezed to meet winter heating and generation needs. Whilst New England on-peak power prices have averaged slightly below $80/MWh in September, forward electricity prices for December 2022 have been trending well above $200/MWh recently. Still facing pipeline constraints for gas coming from the Marcellus-Utica basin, the operator of New England’s power grid has already warned of potential blackouts in the winter in case of a severe cold spell. Despite the havoc wreaked upon Florida by Hurricane Ian, power prices in Florida (FRCC), Georgia or the Carolinas are tangibly lower looking into November-December, with both FRCC and SERC recording notable year-on-year increases in gas-powered electricity generation.
Oil prices have seen choppy movements in recent trading sessions, with fears that the U.S. and EU will continue facing headwinds in taming inflation still dominating the public discourse across the Atlantic Basin. Earlier this week, the bearishness of the US/EU was somewhat offset by Chinese promises of stimulating the economy and reorienting their oil industry to a more export-oriented focus. However, in Tuesday’s trading the Chinese spell has all but disappeared after Beijing delayed the publication of official data, without giving a specific date for the delayed issuance. With the White House chipping in with rumors of potential SPR releases further out, ICE Brent dropped below $90/barrel again.
Several major OPEC+ members, ranging from Iraq to Oman and Algeria, have voiced their support for the November 2 million b/d target cut, saying it was based on economic indicators and was taken unanimously, rebuffing U.S. claims to the contrary. French refinery strike rages on. Even though France’s TotalEnergies agreed to a salary deal with the country’s more moderate trade unions, the most left-wing CGT union has vowed to continue its month-long refinery strike that debilitated the country’s downstream industry.
Still no clarity on Russian oil price cap. U.S. Treasury Secretary Janet Yellen stated that the exact dollar level of a price cap on Russian oil had not yet been determined, disavowing market speculation that the cap will be set in the $60 per barrel range. Europe warns against price caps. According to the European Central Bank, Europe’s energy subsidies including its price cap schemes will reduce the current rate of inflation, expected to come in at 10% in September 2022, however at the expense of future higher rates. Russia advises Europe to cap U.S. LNG prices. Whilst Europe is still struggling to formalize its gas price cap, Russian deputy prime minister Alexander Novak said the United States should cap U.S. LNG prices going to Europe as they are sold at prices four times higher than Henry Hub.