Market Movers Europe, May 9-13: Supply concerns intensify in oil market – S&P Global

In this week’s highlights: Supply concerns have intensified in the European oil market, with power prices also set to hit records and the region’s gas companies facing uncertainty over continued imports from Russia.

The focus this week in the oil market is on supply tightness as we head into the Northern Hemisphere driving season and air travel opens back up.

Weighing on everyone’s minds is the continued debate of the EU’s proposed ban on Russian oil imports on a national government level, alongside the production drop already evident from the country, with analysts estimating a decline just in April of some 900,000 b/d.

Adding to tightness are the limited prospects for increased OPEC+ production following the producer group’s latest meeting on May 5, and plans by the US administration to buy 60 million barrels of crude to replenish strategic stocks.

In time, US shale production is expected to ramp up and demand is being constrained for now by China’s COVID-19 lockdowns and accompanying recession fears. But at present, it is fears over supply that seem to be dominating the market.

We’ll get analysis of all this in the closely watched monthly oil market reports of the International Energy Agency and OPEC, which both come out on Thursday.

In addition, the World Utilities Congress kicks off in Abu Dhabi on Monday, with key OPEC ministers in attendance, including Saudi Arabia’s Prince Abdulaziz bin Salman and UAE energy minister Suhail Mazrouei.

Meanwhile, European power prices for the year ahead have been setting record highs on an almost daily basis as the new reality of rising fuel costs becomes apparent.

German power prices for this year and next year are on course to double again on 2021’s record highs, with market attention shifting to policy makers as they attempt to deal with the impact.

The governments of Spain and Portugal are expected to detail this week plans to cap gas-for-power prices at Eur50/MWh as a temporary measure agreed by the European Commission to reduce consumer bills. The EC is preparing to update its REPowerEU plan on May 18 with the focus now on reducing Russian gas imports into the EU.

And that takes us to our social media question for the week: Will German power prices double against 2021 levels? Tweet us your thoughts.

And finally, to European gas, where uncertainty over whether buyers plan to comply with the Kremlin’s recent order to switch to ruble payments for Russian gas continues to weigh on the market.

In late April, Gazprom cut off supplies to Poland and Bulgaria due to their refusal to comply with the new Russian decree on payments.

But it remains unclear whether bigger gas buyers in the rest of Europe will agree to the new terms, and, if not, whether they could suffer the same fate as Poland and Bulgaria.

According to industry officials, the end of May could be critical as more long-term contracts come up for payment under the new terms.

Italy’s Eni has said it continues to be invoiced in euros and has not opened an account in rubles, while Germany’s Uniper and Austria’s OMV have signaled that they are looking at ways to continue paying for Russian gas that are compliant with EU sanctions against Moscow.

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Market Movers Europe, May 9-13: Supply concerns intensify in oil market – S&P Global

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