The "high fever" in the international energy market is difficult to retreat

Insufficient supply of fossil energy makes it difficult for new energy to "quench thirst"

　　Recently, affected by factors such as European geopolitics, global energy prices represented by international oil prices have always been at a high level, which has had a significant impact on the entire international petrochemical market
.
On the one hand, the blockage of Russia's oil exports and the insufficient recovery of fossil energy production capacity have pushed up the price of global fossil energy
.
On the other hand, many market players around the world are also trying to curb the excessive growth of energy prices by increasing oil production and accelerating the transformation of renewable energy
.
Many industry analysts pointed out that in the short term, the shortage of energy supply will not be significantly alleviated, the application and promotion of renewable energy will not be achieved overnight, and global energy prices will remain high
.

　　Multiple factors have affected  oil prices to new highs since March

　　Affected by European geopolitical conflicts and the EU's energy sanctions against Russia, international oil prices have recently fluctuated and rose, from around $100/barrel on May 10 to around $120/barrel today
.
As of June 16, before the press time, the price of light sweet crude oil futures for July delivery on the New York Mercantile Exchange closed at $117.
59 per barrel; the price of Brent crude oil futures in London for August delivery closed at $119.
81 per barrel
.

　　On June 2, the EU officially adopted the sixth round of sanctions against Russia, announcing that 90% of Russian oil imports will be banned by the end of the year, which is the main factor behind the recent surge in international oil prices
.
Russia, for its part, said sanctions are likely to trigger a new round of price increases, destabilize energy markets and disrupt supply chains
.
According to the EU's sanctions plan, the EU will gradually stop member states from purchasing Russian crude oil by sea within the next 6 months; within the next 8 months, stop importing Russian refined oil products by sea
.
However, Hungary and other landlocked countries that are highly dependent on Russian energy will be temporarily exempted from importing Russian oil through onshore oil pipelines
.
By the end of 2022, the EU is expected to import more than 90% less oil from Russia than it currently does
.
In addition, EU officials said they would stop providing insurance to Russian ships carrying oil for other countries, which would also significantly reduce Russia's ability to export crude oil
.

　　In addition, Saudi Aramco CEO Amin Nasser also said that due to the lack of investment in exploration and production, the world is experiencing an oil production capacity crisis, which is also an important factor in the current surge in oil prices
.
Nasser said that with the wave of green energy sweeping the world, traditional fossil energy is facing financing pressure
.
In the face of potential investment risks, many companies have dared not go deeper into it, which has led to an expanding global oil supply gap
.
Especially after the easing of the new crown pneumonia epidemic, global oil demand has resumed growth, and the oil production capacity crisis has become more serious
.

　　On the other hand, Russia's oil production capacity will also be affected by sanctions
.
Under the "baseline" scenario, Russian oil production will fall by 9% year-on-year this year, according to production and export forecasts previously released by the Russian economy ministry
.
The International Energy Agency said the scale of supply cuts could rise to nearly 3 million barrels per day (bpd) from July onwards as Russian producers shut more wells if the European Union agrees on an oil ban
.
Michael Tran, global energy strategist at RBC Capital Markets, said the EU ban would hamper Russia's 1.
2 million to 1.
5 million barrels per day (bpd) of oil exports, which will have to find export destinations elsewhere, mainly in Asia
.
But over time, Russia's inventories will fill up and production will begin to decline
.

　　Regarding the future trend of oil prices, Jeremy Weir, CEO of Trafigura Group, the world's third largest independent oil trading company, predicted that international oil prices will continue to rise in the next few months, and may reach 150 per barrel by the end of this year.
USD/barrel, or even higher
.
Weil believes the market may not see a drop in demand until the end of the year, when rising commodity prices could weigh on economic activity and eventually cool demand
.
"If we see energy prices at very high levels for a period of time, we will eventually see demand destruction
.
It is difficult to maintain global economic growth while oil prices remain high, " he stressed
.

　　Insufficient supply of crude oil,  international oil price "fever" is difficult to retreat

　　Of course, the main players in the international market will not sit idly by while the high crude oil price drags down the economy
.
At present, many market players are trying to control oil prices and ensure energy security
.
However, market participants said that due to the significant shortage of effective market supply, the current actions of various market players have little effect on controlling oil prices, and it is unknown to what extent they can even alleviate energy shortages
.

　　On June 2, the Organization of Petroleum Exporting Countries (OPEC) held its 29th ministerial meeting online and decided to increase its daily crude oil production by 648,000 barrels per day in July and August 2022, compared with the previous month.
The 50% increase in the previous output increase was the first time OPEC has proposed an accelerated increase since last summer
.
However, OPEC's decision to increase production only briefly affected the rise in oil prices
.
For two weeks, OPEC's decision to increase production did not change the rally in oil prices
.

　　Many market participants said that OPEC's move to expand production may become a "blank check"
.
Joe Perry, a senior analyst at Jiasheng Group, pointed out that, in fact, OPEC members have rarely completed their production increase targets since last year, and the lack of production capacity is the main reason.
It is expected that many countries will continue to fall behind their production quotas in the future
.
Giovanni Staunovo, an oil market analyst at UBS, said it was simply impossible for many producers to meet their output increase targets
.
Most of the member countries have already used their full capacity before and have no spare capacity to increase production.
Only a few countries such as Saudi Arabia and the United Arab Emirates really have room to increase production significantly
.
JPMorgan analyst Natasha Kaneva said OPEC’s decision to increase production quotas for July and August was not enough to address the current supply shortage and that the increased output would not offset the seasonal peaks and increased demand from the reopening of the economy
.

　　The EU turned its attention to Africa and South America
.
In May, 660,000 barrels a day of African crude arrived in Northwest Europe, according to financial data service Refinitiv Eikon
.
Driven by demand, the price of Nigerian light, sweet crude oil hit a record high, at a premium of more than $7 over Brent crude
.
South America became another alternative
.
Italy's Eni and Spain's Repsol have begun shipping Venezuelan oil to Europe, resuming oil-for-debt contracts that were halted two years ago due to sanctions
.
Within Europe, EU countries have begun to resume oil and gas exploration projects that have been shelved due to environmental protection needs
.

　　In addition, the United States is also increasing its supply to Europe
.
European deliveries of crude imported from the U.
S.
rose more than 15 percent in May, the fastest monthly pace on record, according to commodities market data analysis firm Kpler
.
Still, U.
S.
crude supplies to Europe have added to tensions in the U.
S.
domestic fuel market
.
U.
S.
Energy Information Administration data showed that U.
S.
Midwest refined oil inventories fell to their lowest levels since December 2020, and U.
S.
East Coast refined oil inventories fell to their lowest levels on record
.
In order to reduce the impact of energy prices on people's lives, the US government is considering measures such as restricting exports, relaxing environmental protection requirements for refined oil products and taxing the oil and gas industry
.

　　Insufficient transformation support,  EU new energy is difficult to quench its thirst

　　In addition to finding alternative crude oil sources from Russia, countries around the world, led by Europe, are also accelerating investment in new energy sources to accelerate the process of energy substitution
.
In mid-May this year, the European Union formally proposed the "REPowerEU energy plan" with the main purpose of getting rid of Russian energy
.
According to the plan, the EU will continue to promote the diversification of energy supply, encourage the application of energy-saving technologies, and accelerate the growth of renewable energy installations and accelerate the replacement of fossil fuels
.
By 2027, the EU will completely get rid of imports of natural gas and coal from Russia, at the same time increase the share of renewable energy in the energy mix from 40% to 45% in 2030, and accelerate investment in renewable energy by 2027 An additional investment of at least 210 billion euros will be made annually to ensure the energy security of EU countries
.

　　However, at present, the EU's renewable energy alternative plan has been released too quickly, and its own support for related projects may not be sufficient
.
Smarttech believes that although the proportion of renewable energy structure has only been increased from 40% to 45%, it will require an investment of 1 trillion euros to meet this point
.
In addition to this, as the entire power system in Europe is rebuilt, additional investment will be required to meet development needs including grid and battery storage to ensure a reliable supply of energy
.
Smarttech estimates that, for photovoltaics alone, the EU needs to build 450-490 GW of wind power installed capacity by 2030, and requires an investment of 820 billion euros
.
But so far, the European Commission has not issued a fund allocation plan
.
Recent announcements mention that 225 billion euros of loans are already in place, and another 300 billion euros may need to be raised by 2030
.
However, additional investments in power transmission and storage, natural gas infrastructure and hydrogen production have yet to materialize
.
In addition, the excessively large new installed capacity will put pressure on the supply chain, which will further increase the cost of technology
.

　　In terms of wind energy, Reuters conducted an investigation into the North Sea offshore wind farm projects that are currently being promoted in many countries along the North Sea coast and found that the North Sea offshore wind power project is also facing various problems in joint power grid construction, project supervision and income distribution, which has plagued the development of renewable energy in Europe.
The issue of approval has also not been resolved
.
Although European wind energy industry organizations have repeatedly suggested to the EU that if the established renewable energy installation target is to be achieved, European governments should significantly reduce the time required for project approval and simplify the approval process
.
However, the development of renewable energy projects still faces many restrictions due to the strict ecological diversification protection policy formulated by the EU
.