Gas down, Oil up , why ?

[scotview]

UK gas down to £226/therm from £550, while Brent is up to $114 (6% today !) from $100 not long ago.

Any reason or just these crazy markets ?

[mearnsfool]

Two different markets but to simplify things:

Gas is either sold on a contract to supply a certain amount of gas per day or on the spot market where you buy say two hours of gas or say two weeks of gas at and agreed flow rate. The spot gas is sold on a continuous basis.

The production of Gas is not in all cases a function of the amount of oil a field a field produces as some fields only produce gas.

In the UK we also import Gas via large Gas Tankers. Therefore if we have a windy week, therefore more wind than usual so more electricity from Windmills and more than usual Gas Tankers from the middle east arriving at UK Gas terminals.

The requirement to buy gas on a short term basis reduces and the price of spot gas goes down. Now if the wind blows less and there is a reduced number of Gas Tankers arriving, the price will go up again say two weeks from now.

Oil by and large is not used for electricity production in the UK. It is either purchased on a long term contract from the offshore platforms at a fix price or again spot in Oil Tanker loads.

Therefore as oil is sold to different markets such as chemical feed stocks, transport or heating oil. Heating oil tends to be delivered in say 4 month loads to end users.

The oil cargoes do not react to heating loads like gas as much due to home and business storing their oil.

Having worked in the oil industry for years, you always see the demand for the different products go up and down but not in unison.

Different products, different buyers and oil being stored in a lot of cases and gas being used in most cases as it is being produced basically produces these price changes.

[Hallucigenia]

In a more direct answer to the question - as far as gas is concerned, it's down from insane pricing to merely bonkers pricing, it's still incredibly high by historical standards but Europe has been lucky this year. The mild winter has meant that we've gone from being significantly below the 5-year average for gas in storage before Christmas, to back within the 5-year range (gah, can't find the chart I'm thinking of for this). So it looks like we're moving out of the peak demand season for gas (it more than doubles in Q4/1 versus Q2/3) with stocks still looking OK-ish. And it looks like gas won't be targetted in the 5th round of European sanctions.

Oil is more of a global market than gas, and hasn't gone quite as crazy in the first place, it has less seasonality than gas, and it looks like sanctions are having some effect on Russian supply and it will be a preferred target of further sanctions as it brings in a lot more cash to Putin than his gas.

But yes these are crazy markets and I wouldn't read too much into moves on a single day.

[scotview]

Thanks both for the great replies. I also read this morning that a Saudi refinery was attacked over the weekend.

Just one more thought, if the gas price stays where it is or reduces, will this help with with the energy poverty crisis at the back end of 2022 ?

[Hallucigenia]

I also read this morning that a Saudi refinery was attacked over the weekend.

The refinery attack won't make much difference in itself, refining capacity isn't the issue and the Saudis say they can maintain supplies of products out of inventory until it's fixed. It does remind the market that Russia isn't the only place to worry about. More generally, there's a bit of debate about the extent that OPEC is willing and/or able to "turn on the taps" now that Europe is looking to sanction Russian oil.

if the gas price stays where it is or reduces, will this help with with the energy poverty crisis at the back end of 2022 ?

I'm not quite sure what you're asking. Obviously lower prices are good for consumers. But the background is that the UK wholesale gas price (NBP to its friends) was about 50 pence (not pounds!!!!) per therm a year ago, it spiked to over 500p, and is now 225p. So it's lower than it was a few weeks ago, but has still quadrupled year-on-year. And we've not done too much to reduce demand before next winter - every bit of extra insulation, every gas cooker replaced with electric will all help.

And Japan's current problems - a bitter cold snap coinciding with power station outages due to the earthquake has meant they're now looking at blackouts in Tokyo - means that the price of the marginal therm in the form of LNG will remain high for a while.