In this week's highlights: oil markets experience worldwide realignments in trade flows, a price cap on Spanish gas-for-power prices comes into effect, and a US LNG outage could complicate efforts to reduce Europe's dependence on Russian gas.
- Oil markets realigning, Russia holds forum (00:11)
- EU/US task force to focus on LNG plans (01:41)
- Spanish gas-for-power price cap debuts (02:26)
In this week's highlights: a price cap on Spanish gas-for-power prices comes into effect, while a US LNG outage could complicate efforts to reduce Europe's dependence on Russian gas.
But first, in oil, worldwide realignments in trade flows are underway as the EU intensifies sanctions pressure on Russia. This is resulting in strong European demand for home-grown North Sea crude and in rising price pressure on European consumers. But also, for example, South Korean refineries are now supplying more fuel to West Africa as the EU clamps down on exports of Russian-origin oil to the continent.
Increasing disruption to Libyan and Nigerian crude output, as well as refinery restarts and ramp-ups, continue to be the key underlying drivers. Among this, Shell's Rotterdam facility is completing maintenance, and Saudi Arabia's new Jazan Refinery Complex is ramping up.
Amid doom and gloom over the pressures on Europe, we can expect an analysis of the underlying trends in two reports out this week, from OPEC and the International Energy Agency. They publish their monthly oil market reports on Tuesday and Wednesday, respectively.
Russia meanwhile holds its flagship annual economic event, the Saint Petersburg International Economic Forum, starting Wednesday. The forum has been traditionally fronted by President Vladimir Putin and top figures from the Russian industry. The emphasis this year will be on advancing the country's adaptation to sanctions, including through partnerships with countries still doing business with Moscow.
Moving on to LNG, the EU/US Task Force to reduce Europe's dependence on Russian fossil fuels is due/set to meet on Tuesday, with plans for additional US LNG exports to the EU likely to top the agenda.
But the EU's goal to reduce its demand for Russian gas by two-thirds by the end of 2022 is being overshadowed by a three-week outage at the Freeport LNG export terminal in the US, after a fire broke out June 8. In March, the US promised at least 15 billion cubic meters of additional LNG deliveries to Europe this year. The question now is how much more can the US provide under the already tight market conditions shown in the chart here?
In European electricity, a price cap on Spanish power supplies generated from gas is set to come into effect on Tuesday with a likely boost to energy flows up into France.
As you can see in this chart, French power prices are already at a premium to surrounding markets due to low nuclear availability. Spain's market intervention is now set to accentuate the spread.
Meanwhile, healthy wind output and cheaper gas in the UK should help power exports remain strong in the weeks ahead. July cross-border capacity from the UK to France has been selling recently at 26 euros a megawatt on the IFA 1 link.
And that takes us to our social media question for the week: Are power price caps effective tools in arresting inflation? Tweet us your thoughts.
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