Energy Market Scan - Feb 2023

The world awaits to see whether there will be peace or a protracted or an escalated war.

Posted on Mar 6, 2023 by Prakash Kini (PK) and Anup Singh


On the first year anniversary of the Russia-Ukraine war (yes time flies), several countries and global citizens are asking for a ceasefire, some are even proposing multi-point programmes and offering to arbitrate. The world awaits to see whether there will be peace or a protracted or an escalated war.

As the year 2023 progresses, we are faced with several key questions:

  • Is Oil setup for a breakout?
  • Who will fill the gap created in the EU due to stoppage of Russian oil and gas?
  • Has Natural Gas reached its bottom?
  • Is coal demand going to shoot up?
  • Who are the beneficiaries of the energy markets in early 2023?
  • Is the PetroYuan just an illusion?

Our inferences regarding these are:

  1. Crude oil will stay range bound between $70-$90/b despite demand recovery through 2023. Higher prices will attract policy intervention until law makers run out of tools
  2. Product prices will go up: especially diesel and jet fuel. The EU diesel gap will be filled by the re-exporters (as described in our previous edition). As crack spreads widen, they create a significant refining opportunity in these countries.
  3. Natural gas prices will enjoy a upwards ride until they double and revert to slightly above pre-Covid levels of $4-$8 MMBtu. Meanwhile, EU will end up paying much more for its natural gas than the US. In the medium term, new gas suppliers such as Cyprus and Egypt will play a role. While the natural gas prices are low, multiple long term gas deals will be struck by destination countries and re-exporters with several origin countries. Several inter-country gas pipelines are also under construction e.g. Russia-China, US-Mexico, Cyprus-Italy, as these get commissioned they also promise to change the game.
  4. Coal demand will shoot up, especially in China, India and Indonesia who are looking for cheap fuel at scale as manufacturing activity builds up and weather unpredictability has risen significantly.
  5. The Petro Yuan, just by itself, will not have the impact it threatens / promises to have, at least for the near future. Also, China reopening is mostly priced in and will not have any more significant impact on markets (we will be covering this in detail in a separate scan)
  6. Freight will go up, but we need to prepare for a two-tier freight structure between sweet crude in high demand and sour crude in lower demand. Freight goes up in related routes i.e. Panamax and short-haul VLCC routes between Russia & China.
  7. The US and Canada as well as re-exporters such as China and India are the beneficiaries of the energy markets in early 2023; although US LNG exports have diminished in recent weeks as EU storages are filled up for now and Freeport has gone through a couple of outages. As discussed in our previous editions, several countries are also investing in floating LNG terminals for regasification.

Now, let us unravel these key points and more, with deeper insights from our Trade Desk and SIFT, our Narratives Scanner.

From the Trading Desk

Crude Oil

  • Russian Cuts: We take the news flow of Russian production cut by 500k bpd with a healthy dose of skepticism. Alongside sanctions and the impairment in the ability for URAL and ESPO to fetch a parity price, Russia has lost access to machinery, maintenance and equipment imports to maintain oilfields and production. By calling the ‘inability to maintain production at current rate’, a production cut, one may be able to secure a upside price shock. We have actively put that idea in our speculation positioning.
  • The market structure of the benchmark curves reflects a backwardation, albeit to a lesser degree than observed during 2022. The dots that need to be connected are the backwardation in the curve starting in May while commercial inventory is building. Either the participants don’t expect the build to be able to support forward disappearance or there is a supply shock yet to be priced.
  • Looking forward, there is a likely mismatch between inventories of refined products and demand during spring and summer. A tight trading range indicates some form of tranquility in trade flows and origin-destination connectivity, amidst the ambient fragility. Small mismatches have the potential to send the marginal bid up.
  • Bearish news has been absorbed and the floor has held at $72-$75 and bullish news has failed to push the price higher than $85. Seems like the most tracked and measured market grapples with uncertainty, much like others!

Natural Gas

Natural Gas price is taking its clues from the power market, where the forward structure seems to reflect a modest contango in the front. Natural gas prices on NYMEX (Henry Hub), had a nice bounce from the floor-licking lows of $2.50s to $3.00, only to gap lower to $2.75, as I am writing this note. EU storage has built up to ‘normal’ levels through a mild winter, restraint on part of the residents and significant curtailment in manufacturing activity. Manufacturers with direct reliance on natural gas as a feedstock have started to make overseas investment plans and once those plans are in play – gas demand and underlying GDP may not return for a foreseeable duration – shift the Bid on Natural Gas to an alternate destination (or Origin).

  • Unless manufacturing reopens its hard to imagine an upside in Nat Gas prices. 
  • After the crisis of 2022, we expect most commercials to be adequately covered, as either their investors, nor the administrators will be forgiving for open supply and price risk


Coal has the highest intrinsic value given its optionality in ease of movement and the ability of economies round the world to consume it, albeit in plants that need to be brought out of the moth ball. With the crowded EU Bid for LNG coal is a very economic and viable alternative for countries tethering on the brink of energy poverty

Petro Yuan

Sanctions have added to the complexity of the subject. Russian origin crude can now be owned by the destination, viz India and China at a discount and be paid for in bilateral terms. The price discovery of the discount is driven by securing a destination for the crude oil over an economic dispatch market structure and paid for in a currency bilaterally acceptable. While the price discovery is not completely off the market, DUBAI and ESPO are trading at parity, the transmission mechanism may have decoupled. The knock on effects may lead to the creation of a small supply pool that may be less connected to the US$ priced and discovered marginal barrel. More on this in future posts.

From SIFT, our Narratives Scanner

Natural Gas

Geopolitics: EU has increased dependency on US LNG exports

Geopolitics: The Russia Ukraine war has revitalised US Oil and LNG exports

Geopolitics: Hungary calls for UN investigation into Nordstream explosion

More Natural Gas Pipelines in the works

EU demand for natural gas will go up in 2023, especially after cutting Russian imports

Long Term Natural Gas Demand to go down

Global Natural Gas Supplies to go up, new discoveries in Egypt, Cyprus, Black Sea

Price Technical Analysis

Crude Oil

Oil demand to rise in 2023 due to China reopening and aviation rise as per investment banks

Oil Prices are going to remain range bound

Oil Products: Diesel, Jet Fuel

EU Diesel shortfall will be addressed by re-exporters such as India and China

Jet fuel demand to go up

Shale oil and gas will see smaller haul in 2023

Coal demand in China, India Indonesia to shoot up

As natural gas prices shot up in mid 2022, LNG importing became prohibitive, and highly populated nations were pushed into using relatively cheaper coal for power generation. Into 2023, coal demand in countries such as China, India and Indonesia is going to shoot up due to the buildup of economic activity and unpredictable and unfavorable weather conditions e.g. it is just February and it is already getting unusually hot in India.

Freight moves into a two tier market

Is there going to be a Russia-Ukraine ceasefire soon?

Is the Petro Yuan merely an illusion?

All for the Petro Yuan being an illusion

All for Petro Yuan, Petro Rouble and Petro Rupee being a plausible future

Multiple industrial fires in the US

Multiple fires in industrial areas, manufacturing, food processing plants and rail derailments have plagued the US in recent weeks. Are these a victim of international cyber attacks? Or is there a less diabolical and more domestic explanation to all this?

Reasons could range from:

  • Ageing infrastructure not maintained well due to lack of focus and funds reaching a tipping point and giving way
  • Under-skilled staff managing critical equipment due to high attrition, lack of specialised training, or premature induction of young staff due to labour shortages and ageing demographic (other countries such as China and Germany are experiencing similar issues in their armies and manufacturing)
  • Owners are lighting their own plants on fire, to recover insurance money (would not be the first or last time)

California bans new oil wells near residences

California bans new oil wells within half a mile (3,200 feet) of homes and schools.

Poland gets its first nuclear power plant