Fitch Solutions Discusses Gas to Oil Switching

Fitch Solutions Discusses Gas to Oil Switching
Fitch Solutions' Associate Director Emma Richards speaks to Rigzone.

Fitch Solutions expects to see an increase in gas-to-oil switching for use in heating during the winter season in the northern hemisphere, the company’s associate director, Emma Richards, told Rigzone.

“We’ve already seen a switch towards oil, with the increase in gas prices having far outstripped the increase in oil prices in the year-to-date and natural gas is now far more expensive than crude and refined fuels on an energy-equivalent basis,” Richards stated.

“That said, there’s a limit to which this type of switching can occur and the expected boost to consumption represents just a fraction of global oil demand, at less than one percent,” Richards added.

“As such, it’s not likely to have a very meaningful impact on the market, with other demand-side factors - like Chinese economic woes and rising recession risks in the EU and U.S. - likely to be far more influential for prices,” Richards continued.

In its latest World Economic Outlook, the International Monetary Fund (IMF) warned of “increasingly gloomy developments in 2022 as risks began to materialize”. The IMF’s latest baseline forecast is for growth to slow from 6.1 percent in 2021 to 3.2 percent in 2022, a figure the group highlighted is 0.4 percentage points lower than in the April 2022 IMF World Economic Outlook.

“The global economy, still reeling from the pandemic and Russia’s invasion of Ukraine, is facing an increasingly gloomy and uncertain outlook,” Pierre-Olivier Gourinchas, the Economic Counsellor and the Director of Research of the IMF, stated in a blog posted on the IMF website on July 26.

“Higher-than-expected inflation, especially in the United States and major European economies, is triggering a tightening of global financial conditions. China’s slowdown has been worse than anticipated amid Covid-19 outbreaks and lockdowns, and there have been further negative spillovers from the war in Ukraine. As a result, global output contracted in the second quarter of this year,” Gourinchas added in the blog.

At the time of writing, the price of Brent crude oil is trading at $90.48 per barrel. The commodity’s peak closing price in 2022, so far, was seen on March 8, at $127.98 per barrel.

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