Analysts at Energy Aspects have confirmed that the reduced supply of energy in Europe as a result of sanctions imposed against Moscow, which has caused export routes for gas to be shut down, will leave the EU clambering for gas and oil well into the winter.
Energy Aspects is an energy and macro research consultancy that provides research, analysis and data of key energy commodities. In an interview with Bloomberg last week, Amrita Sen, director of research and founder of the analytical firm, stated that this energy crisis wasn’t a one-winter story. Sen explained that in order for the market to be balanced, Europe would need to ration the demand not only in the coming winter season but also the next two winter seasons.
The natural gas and energy crisis is pushing Germany into a recession, which analysts expect to deepen as winter begins. Germany is the biggest economy in Europe. In its latest report, Bundesbank, the country’s central bank, stated that the country nationalized Uniper in an effort to prevent the collapse of domestic gas and energy suppliers. Uniper is the largest importer of gas in the country.
Across Europe, industries have been forced to reduce or halt their production due to the increasing prices of energy. Some industry associations have revealed that the proposals made by the European Commission to help businesses and households through the energy crisis and decrease the price of energy weren’t sufficient to help them survive the coming winter season.
During the interview, Sen added that Energy Aspects expects the oil market to experience a volatile end to the year. This year is said to be the year with the second-highest volatility since the ‘90s; 2020 recorded the highest volatility in three decades.
Last week Brent Crude was trading at $90 a barrel. In the interview, Sen noted that the firm expected the price of energy to continue increasing as the year came to a close, stating that the price of oil would probably reach $120 per barrel.
The analysts also expect that as the European Union’s embargo comes into effect, China and India may, in theory, absorb the additional oil from Russia. However, the ability of Russia to export oil may still be affected due to the banking sector’s weariness of secondary sanctions from America. The analysts add that Moscow tying up oil on vessels to Asia and looking for buyers will also lead to an increase in freight rates.
If companies such as Alliance Resource Partners L.P. (NASDAQ: ARLP) can bump up their production, they could dent the energy deficit threatening to drag entire economies into recession when winter sets in and energy use peaks.
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