Gas crunch could drive oil to hit $85 this winter: MUFG

Gas crunch could drive oil to hit $85 this winter: MUFG

While global gas prices have surged driven by a myriad of events, the knock-on effects of gas crunch may lead to an even tighter physical oil market, and a transitory price spike above $85 per barrel  (/b) in the fourth quarter (Q4) of 2021 cannot be ruled out, a report said.





Global gas prices have been hit factors such as LNG supply outages; steep declines in European gas production; below average renewable power output; and lower-than-expected Russian exports to Western Europe, said the Mitsubishi UFJ Financial Group, a Japanese bank holding and financial services company, in its latest “Oil Market Weekly”.





With Europe heading into winter with well-below gas inventory levels, markets are progressively fixated on both the magnitude of imported gas/LNG to the continent and how much oil can replace gas in the months ahead.





“For an oil markets perspective, we estimate that the conceivable capacity for gas-to-oil switching at 1.9 million barrels per day (mbd) across Europe, Asia and the Middle East. Should only a fraction of this potential switching occur this winter – in tandem with rising demand for heating oil – then this could result in a global oil demand surge of between 1-2 mbd for 3-6 months,” MUFG