Commodities are all a timing game, look at EU gas - gas to fuel oil switching logic works both ways!

Commodities are all about timing a window when demand exceeds supply that causes a price squeeze. But over time supply does catch up or the system resets itself, the only problem is that sometimes it can be a few weeks and other times a few months. Gas is a Commodity that is stored but only by the season, so even if this winter may not be a concern, next winter could be a different ball game depending on where Europe stands in terms of its alternative investments. There is a secular case to be made for more diversification and cleaner sources but relying on Russia is definitely not one of them. We saw a few weeks ago, when even the NordStream 1/2 pipe burst did not cause much of a rally in gas. US LNG cargoes have more than made up for the Eu shortfall as US producers have jumped on the opportunity to send gas trading multiples $/MMBtu higher than at their local hub. Gas is fungible but via LNG, depending on capacity and terminals. At the end of the day, the shortage was felt for a brief time but then flows were re-routed to make up for the shortfall.

Now what about gas to fuel switching, does the logic not work in reverse as EU gas prices have fallen more than 50%? Does any sell side consensus assume that?

What does this mean for Oil prices and more importantly, Oil products and refining margins? We discuss this and more in today’s note! Sign up as MBCC does not tell you what HAS happened, but what WILL happen based on forward looking demand/supply indicators!

Remember the extreme shrieks on the way up?