Colder winter could boost gas to oil switching demand

Oil&Gas Materials 19 October 2021 11:02 (UTC +04:00)
Colder winter could boost gas to oil switching demand

BAKU, Azerbaijan, Oct.19

By Leman Zeynalova – Trend:

A colder-than-normal winter in a combination of main gas consuming regions could potentially boost gas to oil switching demand to 925 kbd—likely close to the probable upper limit of how much demand oil can gain from gas, thus ‘fundamentally’ capping Brent oil at around $90/bbl, Trend reports with reference to the US JP Morgan Bank.

“A cold and extreme winter throughout the northern hemisphere, however, could theoretically necessitate the switch of the full 2 mbd of gas-to-oil switching capacity for a period of time, pushing prices even higher. That being said, starting from November and the deeper we go into winter, with each month that is warmer than normal, the global gas balances will ease marginally, helping to unwind a large portion of the recent rally in both gas and oil prices.

Although winters are notoriously difficult to predict, today we possess some limited indications and probabilities of how cold or warm this winter could be. On Thursday, the US National Oceanic and Atmospheric Administration’s Climate Prediction Center (NOAA) announced that, for the second straight year, La Niña conditions have emerged in the tropical Pacific Ocean over the past month with forecast models putting the odds near 90 percent that La Niña weather patterns would stick in some capacity through the winter and relax toward spring. La Niña weather patterns typically bring colder-than-normal conditions to the northern US, while the southern US is warmer and drier than normal. This could mean the drought-stricken Southwest will likely stay dry,” reads the Bank’s report.

JP Morgan notes that in South America, La Niña’s greatest impact is likely to be dry conditions in Argentina and Southern Brazil, while in Asia, La Niña’s weather formation brings a chill to Japan and Korea and dries out parts of China. “NOAA applies a 57 percent chance for La Niña to be a moderate event, like the one that started last fall before fading away in May 2021. For comparison, last year’s winter was the world’s eighth warmest in 142 years of record keeping, according to the US National Centers for Environmental Information.”


Follow the author on Twitter: @Lyaman_Zeyn