For the first time since April, the price of oil has gone below $100 a barrel, because of global shocks reducing the demand for the commodity.
According to Oilprice.com WTI Crude oil has dipped to US$99.64 (Brent) and US$96.30 (WTI) from highs in February of US$105.79 (Brent) and US$100.54 (WTI); highs not seen since 2014.
But former minister of energy Kevin Ramnarine said that the price will not stay below $100 for very long, as the colder months will see a spike in demand for oil and gas to keep temperate countries warm.
Ramnarine told Newsday that Trinidad and Tobago’s role in the oil, gas and petrochemical sectors may soon be greater than it was before which means that it will benefit from higher prices and higher demand as countries around the world face energy crises and possible recessions.
Covid19, Russia, high prices affect demand
Ramnarine said the reduction of demand because of high fuel prices, China’s strict rules and regulations on covid19, the Russian/Ukrainian war and concerns over the state of European economies have all contributed to the overall price of oil going down. He said the ripple effect the high price of oil earlier in the year had on other commodities such as fuel and transport caused demand to dwindle as consumers began managing and reducing costs.
“There comes a point where an increase in price leads to something called 'demand destruction' where consumers makes a decision that they are not going to consume as much as they used to. That demand destruction is beginning to set in around the world.”
He added that China’s hard-nosed stance on covid19 has also negatively affected that country’s ability to recover. He said China has one of the more stringent policies in the world.
“In China, entire cities are shut down because of a few cases,” he said.
“So because of that approach China’s economy has not yet returned to pre-covid state and their demand for oil has not yet returned to pre-covid levels.”
Last week a VOA news report said millions of people were sent back inside and businesses forced to shutter their doors across China after clusters of cases sparked restrictions. Chinese health authorities reported more than 300 infections in Xian and new clusters in Shanghai, Beijing and other provinces.
China’s low demand coupled with the Russian/Ukrainian war’s effect on European economies has also weighted down the price of oil.
“There is an increasing fear in the marketplace that the economies of the world and Europe in particular are in serious trouble,” he said.
“The Euro zone has some of the largest economies in the world, with Germany, France and other countries being considerably large.
“There is a concern that Europe could dip into recession and the United States (is) also showing similar signs. I am not saying that it will happen, I am saying that there is a fear of it happening. That fear is being reflected in the market.”
Winter is coming
Ramnarine however assured that the colder months when Europe and the US will need heat will see its usual increase in demand for oil, thereby raising the price above US$100 once again.
“To coin the phrase from the popular TV show, winter is coming,” he said.
“When winter comes there is an increase in demand for oil and natural gas for heating. Oil prices tend to increase closer to winter.”
Because of sanctions levied against Russia and Russia limiting the gas supply to Europe, many European countries are now even resorting to coal to maintain a power supply to the region.
“The price is still high and it will stay that way – between US$80 to US$130 – for some time.”
Ramnarine said because of the high prices of oil gas and petrochemicals, the country is benefiting, but not as much as it could be.
Because TT is not producing as much as it should – averaging at about 55,685 barrels a day – it is not benefiting from the current oil boom as it did in the past.
“Usually when TT experiences an oil boom it is when oil is at a high price, and there are high levels of production. We have had two oil booms since independence. The first was in 1973 to 1982, the second was between 2003 and 2008. Now, there is a high price, but there is not enough production.
Ramnarine said TT will have more opportunities to cash in on Europe’s demand for oil and gas, especially as the Russian/Ukrainian war has pushed the region into an energy crisis.
“Europe is facing an energy crisis of their own making because they allowed themselves to be too dependent on Russia for gas. To switch from Russia to other sources of natural gas is not something that could be done overnight,” he said.
“It could take years to change that.”
TT is providing Europe with much needed energy security through our shipments. LNG shipments, Ramnarine said, is going as far as Lithuania, which took a decision years ago to not be dependent on Russian gas.
“Our role in what is happening in the world is by no means inconsequential,” Ramnarine said.
“But it would be preferable if we had more cargo to send.”