Oil Prices Are Rising

Oil prices rose, supported by a weaker dollar and a US plan to replenish petroleum reserves. However, concerns about the impact of rising COVID-19 cases in China, the world’s largest oil importer, limited the gains.

Following a 76-cent gain the previous session, Brent crude oil futures were up 33 cents, or 0.4111%, at $80.13 per barrel. After rising 90 cents on Monday, WTI crude futures in the US for February delivery rose by 57 cents, or 0.7523%, to $75.95. After releasing a record 180 million barrels of oil this year, the United States plans to buy up to 3 million barrels for the Strategic Petroleum Reserve.

Prices have increased due to the weaker dollar, making oil more accessible to those who use other currencies.

According to Barclays analysts, the full implementation of EU sanctions could result in a 1 million barrel per day (BPD) decline in Russian oil production by the end of March, while the reopening of China’s economy could result in a 1-2 million BPD increase in demand. While China has relaxed pandemic restrictions, an increase in COVID-19 cases has been negative for oil markets due to concerns about the country’s economic recovery.

Cities across the country have been scrambling to add hospital beds and fever-screening clinics in response to growing international concern that Beijing’s decision to dismantle its stringent “zero-COVID” regime may result in deaths and virus mutations.

Last week, it was anticipated that crude oil stocks in the US would decrease by about 200,000 barrels while gasoline and distillate stocks would increase.

The Trading of Natural Gas in Europe

The energy ministers of the EU have agreed to a gas price cap to reduce gas prices, which have increased energy costs and contributed to record-high inflation this year after Russia stopped delivering most of its gas to Europe.

Some market participants worry that the cap, which would be activated if prices on the front-month contract for the Dutch Title Transfer Facility (TTF) gas hub exceeded 180 euros per megawatt hour for three days, could push trading onto the over-the-counter (OTC) market.

Gas prices in Europe have shifted away from oil indexation, which uses oil as a price indicator, and toward hub pricing, where natural gas is based on demand and supply.

A study released this month by Oxera Consulting found that hub pricing determined 77% of gas volumes in 2021. Hub pricing typically rules in north-western Europe, while oil indexation is more frequent in Mediterranean gas trading.

There are approximately 30 gas trading hubs in Europe, but not all are very active. Britain’s National Balancing Point (NBP) and the Dutch Title Transfer Facility are the most mature, liquid, and transparent.

Other active hubs include the Austrian hub Virtual Trading Point (VTP), the Belgian hubs Zeebrugge Beach (ZEE) and ZTP, the Spanish hub PVB, the French hub Point Exchange Gaz (PEG), the Czech hub VOB, and the Italian Punto di Scambio Virtuale (PSV).

Germany established Trading Hub Europe (THE) last year after merging its two pre-existing hubs to increase liquidity and streamline administration.