WINTER DELAYED: November 1st is the typical start of the winter heating season in energy markets. It has been delayed by warmer weather, which may continue if forecasts are to be believed. This has helped drive a welcome plunge in European natgas prices, for example. Yet tight supplies are keeping US refined product price premiums high, raising price risks for a return of more normal seasonal demand. This would keep delivering huge energy company profits and stoke windfall taxes talk. These taxes are a European reality but unlikely in the US. This has driven a big performance and valuation wedge between their energy sectors this year.
SEASONALITY: US energy markets have clear seasonal patterns. Gasoline demand is boosted by the summer driving season. This often supports crude oil prices. Gasoline accounts for 44% of all US oil demand, and transport 67%. Natural gas prices often rise ahead of winter heating season demand. 43% natgas is used for electric power and residential needs. Whilst heating oil typically has a stronger seasonality later in winter. 85% of demand is from the north-eastern US.
THIS YEAR: The weather has been unseasonably warm on both sides of the Atlantic this year. Long term forecasts say this may continue in Europe and US. We have seen summer droughts and a La Nina global weather phenomenon. Yet both the gasoline/crude and heating/gasoline refined product price spreads are 25% wider than usual (see chart) on bottlenecks and low inventories. An increase in winter demand, or more disruption, would worsen this. Refiners, from Marathon (MRO) to Valero (VLO), and majors like Exxon (XOM) look set to keep benefitting.
All data, figures & charts are valid as of 02/11/2022