A global energy crisis looms; oil, gas, and coal prices go northwards

Just ahead of the winter season, Europe’s natural gas crunch has created a snowball effect in global energy markets. What started as very low gas inventories in Europe during the summer is now spilling over into oil, natural gas, and coal prices all over the world, with no quick fix or signs of a major short-term correction in sight.  

Brent Crude prices topped $80 per barrel this week, the highest level in three years. As the winter heating season in the northern hemisphere approaches, gas and power prices in Europe are surging, driving up coal demand and prices in Europe and globally as more coal is used in the power sector.

At the same time, economies are rebounding from last year’s COVID-inflicted slump, with energy-intensive industries growing. But as demand rises, supply stays muted due to underinvestment in new energy supply in the past 18 months, the OPEC+ cuts, and weather-related outages such as Hurricane Ida at the end of August, which constrained U.S. Gulf of Mexico oil and gas supply throughout September. 

Because the supply of oil, gas, and coal is struggling to catch up with recovering demand, energy prices are rallying around the world. 

Consumers and industries in Europe have already started to feel the pinch from record gas and power prices. Industries across Europe are scaling back operations due to record natural gas and power prices. Utilities are firing up more coal-powered electricity generation, pushing demand for coal higher, despite the record carbon prices in Europe and the European Union’s pledges to be a net-zero bloc by 2050. 

European coal prices have hit a 13-year high as coal supply to Europe remains constrained and utilities fire up more coal power plants amid surging natural gas prices. 

The rally in natural gas prices is also spurring on global demand for coal. China and India are replenishing low stocks of coal, driving coal prices in Asia to records. 

In China, a power supply crunch may be looming amid soaring coal and gas prices and electricity demand.

Oil price hitting $80 a barrel, however, would be a pain point for many crude importers, including large Asian customers such as China and India. 

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