Crude oil hits 3-year highs |19 October 2021

• Prices to soar at the pump

The world is more and more on the irreducible road towards a triple-digit oil price for the foreseeable future. Motorists and other energy products users must rid themselves of the fiction that low oil prices are the token of the day as it was during the Covid-19 lockdown price crash.

The crude oil market has gone on an unstoppable rally for the past ten days sending prices to USD85 per barrel as the global energy crunch continues to worsen.

The crude oil price pushed up to 3-year highs since October 2018 as trading seems to confirm that 70% of the players on the international market are buyers thus causing this record high rate.

These multi-year highs are sending shockwaves around the world and particularly in small oil importing countries like Seychelles.

The price of motor gasoline on the global market has increased by 76% since January 2021, representing a huge increase which has of course impacted the local price in Seychelles.

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Worldwide energy turmoil

Natural gas prices are also increasingly impacting crude oil with consumers looking for cheaper fuels as a substitute. Indeed, a major anomaly has now emerged: power producers are doing an about-face by switching from costly natural gas to oil, a reversal from the decade-long trend of transitioning from costly oil to cheaper and cleaner natural gas. It is a rapidly growing trend that could boost global crude demand by a good 2 million b/d in the space of just a few years.

Natural gas markets have lately been energized by expectations of rebounding demand in the looming northern hemisphere winter as insufficient levels of inventories ahead of the winter season have been driving a spike in natural gas prices. The natural gas rally started in Europe several months ago but has been spreading like wildfire to the rest of the world. To add to this precarious situation, news confirmed that China’s coal crisis worsened last week after sixty coal mines in the country’s top coal-producing region were forced to shut amid heavy rain, flooding, and landslides. This immediately sent the alarm bell on all oil trading floors as the tighter Chinese coal output globally raised the outlook for gas-to-oil switch, which is set to boost oil demand even more. The weather-related setbacks for Chinese coal production come at a time when the world’s second-largest economy is grappling with a shortage of coal supply and a power crisis, which threaten to slow economic growth.

OPEC+ adds on the pressure

Crude prices seem to have now settled quite comfortably above the $80 mark, despite growing calls from US officials on OPEC+ to increase production to ease the ongoing appreciation of transportation fuels. The supply restraint of the oil group has been largely offset by the Chinese power crunch and production mandates for refiners across the country.

The OPEC+ group kick-started this week’s oil price rally after it decided on Monday to keep plans for easing the cuts unchanged, despite calls for more supply from consuming countries. OPEC+ will increase supply in November by 400,000 barrels per day (bpd) – the minimum the market was expecting ahead of the meeting. As a result of the decision, crude prices hit their highest level in seven years. Oil prices will continue to vault to multi-year highs if OPEC and other major producers opt against increasing output by more than previously agreed. This very volatile situation comes at a time when the US Energy Information Administration is signalling a decline in oil output in the country for 2021, more than previously estimated.

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Seychelles feeling the heat

On the local front, the price of motor gasoline is still relatively stable since the beginning of the year between R20 and R21. This week it remained at R20.49 but all indicators tend to show that this is not going to last long. A substantial rise in the price at the pump is most likely as the stock now in the local tank dates from the previous purchases at lower import prices.

“One positive factor guiding the price tag is the stable rate of exchange of the USD to the rupee,” Sarah Romain, Seypec’s general manager, commercial, told Seychelles NATION. “Unlike during the first part of this year when the USD was at R21.75, it is now much lower around R15, thus tempering the shock of the soaring international crude oil prices. But it is no secret that the prices of energy products like motor gasoline and gas oil will have to be adjusted on the high side when the next consignments of fuel products are in use.”  

At Seypec, Mrs Romain confirms that all actions are taken, and policies adopted to minimise this eventual but inevitable move on the retail prices. Import prices are closely monitored, stocks efficiently managed and distribution diligently organised. On the regional perspective, the price of motor gasoline still compares favourably with other neighbouring countries with prices likely to be increased in Mauritius shortly.

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Foreseeable future

This is no longer business as usual on the oil market. With the global energy market remaining on fire, crude oil prices seem to stay on a strong footing. The global power crunch continues to raise expectations for higher gas-to-oil switching demand at a time where OPEC+ maintains its modest pace of oil monthly oil production increases. The prospect of an upcoming festive season with a USD100 per barrel is a very sour gift that all users will have to bear with in the coming weeks.