There are good signs that the European gas crisis
that reached an alarming level during the past few weeks is finally easing, as
the very natural factors that triggered it off, appears to be in the reverse
mode.
As far as the United Kingdom is concerned, as of
Tuesday, the share of renewables to the power grid has gone up from 27.8% last
week to 42.1% this week. In proportion, the contribution from fossil fuels has
gone down from 37.6% to 26.8% during the same period.
The power companies in the UK were forced to use gas
and even coal, when the wind turbines could not produce estimated power for the
national grid in the summer months due to slow winds.
As an inevitable consequence, the demand for gas
shot up, defying initial estimates and so did the price of gas. Since the
sudden demand for gas led to a supply crunch, power companies turned to crude
oil – as the last resort.
During the short, but turbulent period, a few gas
companies in the UK went bust, with a looming winter fuel crisis on the
horizon.
Fortunately, the wind speeds in the UK in the
regions, where there is a high saturation of off-shore wind turbines, are
finally picking up. The weather model that I used at the top of this article
forecasts a steady increase in wind speed in the coming days.
In addition, the weather forecasters believe that there
will be warmer days ahead as we approach the winter. That means, the demand for
natural gas will not be as acute as the predictions for the worst case
scenario.
If the gas price does not go up at a faster rate,
the crude oil price will reach an equilibrium too in the long run, safeguarding
the interests of both producers and customers.
At present, the oil producers are under tremendous
pressure from influential political realms to increase the production. The global
economy as a whole, on the hand, will suffer irreversibly if the price keeps
rising at this rate, which in turn will affect the oil producers as well.
The pandemic, meanwhile, is picking up the momentum
once again, especially when the colder periods are ahead of us. In the UK, for
instance, there are over 200 deaths and 40,000 confirmed cases as of Wednesday.
We need to take into account the crude inventory
build-up in the US, the world’s top consumer as well; for three successive
weeks, it has been growing by significant amounts, when analysts expected the
exact opposite.
In this context, it is in everyone’s interest to
keep the price of crude oil at a reasonable level, while protecting both
producers and consumers for the months ahead.
