Europe’s soaring gas prices are making it more cost-effective to burn oil for industrial use, potentially boosting the region’s demand for barrels.
Natural gas surpassed the equivalent of $100 a barrel on Monday, a two-year high. The price jump raises the prospect of more switching from gas to petroleum products such as diesel — also known as gasoil — wherever that flexibility is available.
“We have already seen increased gas-to-fuel oil switching and gas-to-gasoil is next,” said Eugene Lindell, head of refined products at consultancy FGE. “This is one of the pillars of gasoil strength right now.”
Back in 2022, a surge in the price of gas encouraged switching in Europe and beyond. Expensive gas can also impact refinery operations, potentially adding to the cost of diesel production.
This time around, the price gaps are — so far — much smaller: gas has only just nudged ahead of benchmark diesel futures in Europe on a barrel-equivalent basis, which hadn’t happened since early 2023.
FGE expects that switching in Europe will only increase demand for diesel-type fuel by less than 100,000 barrels a day — a tiny fraction of the region’s overall consumption.
But the switch to other fuels will probably also be seen in Asia, which competes with Europe for costly imports of liquefied natural gas.
“Europe and Asia will all lean towards consuming more oil and more coal if they in any way can do so,” SEB AB said in a note.
— With assistance from Alex Longley, Priscila Azevedo Rocha, and Anna Shiryaevskaya – Bloomberg
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