Europe’s Energy Crisis Won’t Be Over Anytime Soon, Experts Say

A man waves a European Union flag in front of the Romanian Parliament headquarters during a protest … [+] against government and corruption in the front of the Romanian Government headquarters in Bucharest on November 26, 2017. Thousands of Romanians took to the streets on November 26 in fresh protests at the left-wing government and what critics say are its attempts to go easy on corruption. A joint statement by around 40 civil society groups and two trade union federations who called the protests said Romania has been “taken over by a political mafia”. They want the withdrawal of proposed legislation that would overhaul Romania’s justice system and reduce the powers of the respected anti-corruption directorate, the DNA. / AFP PHOTO / Daniel MIHAILESCU (Photo credit should read DANIEL MIHAILESCU/AFP via Getty Images)

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Russia’s invasion of Ukraine quickly laid bare Europe’s dependence on Russian energy. But solving the matter could take years, experts say.

Worse still, the EU and UK will likely suffer economic turmoil while the situation rights itself.

First, OPEC seems to have no desire to pump more oil to help moderate crude price. The price of a barrel of Brent crude oil recently fetched $100 up from approximately $72 a year ago, according to data from TradingEconomics.

Historically, high prices, those above $80, have prompted a response of increased supply by producers. But not this time. And it doesn’t look likely to happen any time soon.

No Likely Oil Supply Increase

OPEC, which controls the lions share of oil production wants to keep oil prices at around $100 for as long as possible, according to a recent report from geopolitical consulting company EurasiaGroup as follows.

“Oil prices have jumped, with front-month Brent trading above USD 100 per barrel, following comments last week by Saudi Energy Minister Prince Abdulaziz bin Salman hinting that OPEC+ might cut production to stabilize prices […] The references to cutting production suggest that the kingdom would like to extend this bonanza as long as possible, with about USD 100 per barrel as its ideal Brent price level, at least for the time being.”

In addition, Wall Street wants Big Oil to stop spending on new projects. Part of the reasoning is that investors don’t see a good future for fossil fuels. Still, it means that mothballed gas and oil wells are not being brought back into production. And of course, that means energy supply is not increasing enough to moderate prices.

Eye-popping Energy Prices to Hit Europe

Europe’s reliance on Russian energy, oil and natural gas, combined with sanctions on the Kremlin is crushing Europe’s economy. The EU’s economy already grows far slower than does the U.S. so it won’t take much to push the bloc into recession.

Worse still, it looks like the situation won’t be solved any time soon, according to a recent note from the Lead Lag Report. The note states the following:

“[The] energy crisis in Europe is looking more and more like it could be a years-long battle and OPEC doesn’t seem interested in lifting production quotas to suppress risk.”

That’s probably going mean profits suffer in the bloc for a while. Investors be warned.

Source: https://www.forbes.com/sites/simonconstable/2022/08/30/europes-energy-crisis-wont-be-over-anytime-soon-experts-say/