Commodity Giant Paints Bullish Oil and Gas Outlook

(Bloomberg) -- The world faces higher oil and gas prices this winter and beyond as supply struggles to catch up with fast-rising demand, according to Trafigura Group, one of the world’s largest commodity trading houses. 

“We’re going to see higher oil prices,” Ben Luckock, Trafigura’s co-head of oil trading said in an interview. 

Luckock said the market was mis-pricing forward oil contracts for the next couple of years because traders hadn’t yet woken up to the fact the supply-demand balance will remain tight for some time.

“Deferred crude, particularly for December 2022 and 2023, is cheap,” he said. Brent crude for delivery in December 2022 is currently changing hands at around $70 a barrel, but Luckock said it wouldn’t be surprised if Brent has risen to about $100 a barrel by then.

“I struggle to see anything but higher prices going forward in the next two years,” he said. 

On Monday, Brent crude for immediate delivery surged toward $80 a barrel, setting its highest price in nearly three years. 

Trafigura is the world’s second-largest independent oil trader, behind industry leader Vitol Group, giving the company a privileged view of global energy flows. 

On natural gas, he said prices could shoot up sharply this winter if cold weather forces demand higher in Europe and Asia. 

The bullish outlook comes as oil demand fast recovers toward its pre-pandemic level, with most traders expecting that consumption will reach the 2019 by early-to-mid 2022. As demand rebounds, supply has struggled to keep up: U.S. shale companies have kept a lid on spending, preferring to pay dividends to shareholders. With U.S. shale reacting slowly to higher prices, the OPEC+ oil cartel has been able to keep control of the market. 

“The U.S. shale industry is showing very strong discipline. Oil prices are roughly double what they were a year ago and despite that we’re not seeing a huge increase in drilling,” Luckock said.

Luckock said that it was difficult to see lower natural gas prices this winter in Europe, despite the commodity trading at a record high already. 

“If it’s a cold winter in Europe or Asia, we have a big problem,” he said. “If it’s cold, and on top, it isn’t windy, then we have a much bigger problem. We will face shortages.”

Natural gas prices in Europe have surged past $25 per million British thermal unit, more than 400% higher than the 2010-2020 average, and significantly higher than in the U.S., where the commodity trades at around $5 per million Btu. In Asia, liquefied natural gas has recently changed hands at around $27 per million Btu, a seasonal record high. 

“If the weather is normal, prices could drop a bit lower; if the weather is bad, prices will rise a lot higher,” Luckock said. 

Luckock said he was skeptical that Russia, the biggest gas supplier to Europe, was intentionally tightening the market for political gain, suggesting that Moscow was already pumping as much gas as it could right now. 

“It’s easy to say that’s politically motivated, but I think it’s simpler than that: Russia is facing maintenance in many gas fields, very low domestic inventories, substantially increased flows to Turkey, and Gazprom is struggling to increase production,” he said. 

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