“Europe’s Energy Crunch Sparks Panic in Asia and Dash to Buy Fuel”
Bloomberg, September 16, 2021
“Europe’s Energy Crisis Is Coming for the Rest of the World, Too”
Bloomberg, September 27, 2021
“European Energy Prices Surge to Records as Supply Crisis Spreads”
Bloomberg, September 28, 2021
First appeared in our Q3 2021 commentary
The energy crisis unfolding across Europe, Asia, and South America caught almost everybody by surprise – but not our readers, we hope. Our Q2 2020 Natural Resource Market Commentary was titled “On the Verge of an Energy Crisis.” Fast forward 14 months: the energy crisis we predicted has arrived with a vengeance.
Yet, we assumed the energy crisis would first hit global crude markets and then spill over into natural gas. Instead, the opposite has occurred: tightness in global gas markets is now impacting crude.
We thought extremely strong oil demand, coupled with a feeble rebound in non-OPEC production, would lead to a situation never seen in 160 years of crude history: demand would actually surpass global pumping capability by the end of 2022. Even during the two energy crises of the 1970s (the Arab oil embargo of 1973 and the Iranian hostage crisis of 1979), crude demand did not come close to exceeding global pumping capability. Recent data strongly suggests our modelling was correct: demand will exceed pumping capacity by the end of next year.
In retrospect, we know that natural gas markets, not oil markets, were the first to slip into severe deficit (we should point that we were also extremely bullish on gas, and we maintained strong exposure to natural gas investments as well). Low inventory levels, extremely strong demand, and disappointing output from renewable sources (primarily wind and hydro), have caused European and Asian natural gas prices to soar.
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