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Joint gas buying no quick fix for Europe’s supply crunch

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© Reuters. FILE PHOTO: A pressure gauge is pictured at a Ukrainian gas compressor station in the village of Boyarka near the capital Kiev January 20, 2009. REUTERS/Konstantin Chernichkin/File Photo

By Kate Abnett

BRUSSELS (Reuters) – The European Union’s plan for countries to buy gas jointly could maximise supplies and ensure better contract terms in the coming years, but is unlikely to help in the event of a sudden supply cut off, analysts and EU officials said.

Pressure on Europe to secure alternative gas supplies increased on Thursday after Moscow imposed sanctions on European subsidiaries of state-owned Gazprom (MCX:GAZP) and Ukraine stopped a gas transit route, pushing prices higher.

To become more independent of Russian gas and build a buffer against supply shocks, the EU in April launched a platform to pool demand and jointly buy gas. The dash for alternative supply has acquired further urgency after Russia cut gas supply to Bulgaria and Poland.

But together or alone, EU gas buyers face a market of soaring prices and tight supply. European gas prices hit record highs after Ukraine’s invasion by Russia, which supplies 40% of EU gas, following months of climbing prices.

“It’s very hard to see that there is any non-committed gas in the market. Why would the EU find new gas that the member states at the current prices could not find?” said Christian Egenhofer of the Centre for European Policy Studies.

EU leaders said in March they would work on joint gas buying “with a view to next winter”. The executive Commission, however, appears to be looking to the longer term.

A draft Commission document, part of a package to cut reliance on Russian energy to be published next week, said the joint buying platform would work “notably to establish long-term partnerships with energy supplying countries”.

Analysts said the EU could potentially use its clout as the world’s biggest gas buyer to negotiate longer-term contracts, also for hydrogen or imports of low-carbon electricity.

“Where I think it could potentially help is when setting contractual terms with large suppliers,” said Jacob Mandel, Senior Associate at Aurora Energy Research.

But first, Brussels would need to navigate the complexity of coordinating negotiations and purchases among the EU, national governments and individual companies – and avoid potential legal issues over EU competition rules posed by large companies banding together.

Under the EU plan, Commission and EU government officials would negotiate deals, but it is not clear at what point companies would be involved, or what say they would have on prices and contract terms.

Because participation in the EU scheme is voluntary, it also raises the question of whether enough big buyers would join to create a powerful negotiating bloc.

Bulgaria, Poland, Spain and the Czech Republic are among the countries interested, EU officials said. The biggest EU gas buyer, Germany, also supports the plan, but it will be up to companies to decide to participate, a German official told Reuters.

One EU official said some large energy firms were reluctant, howver, since they can already negotiate their own deals with major suppliers. “The big ones don’t see a business case in it for them,” the official said, speaking on condition of anonymity.

Commodities

Oil prices open lower as EU struggles to seal Russia import ban

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© Reuters. FILE PHOTO: Oil pump jacks are seen at the Vaca Muerta shale oil and gas deposit in the Patagonian province of Neuquen, Argentina, January 21, 2019. REUTERS/Agustin Marcarian

By Laura Sanicola

(Reuters) – Oil prices opened lower in early Asian trade on Tuesday after the European Union’s efforts to enact a ban on Russian oil imports, a move that would tighten global supply, ran into resistance from member country Hungary.

Brent crude futures fell 35 cents, or 0.3%, to $113.89 a barrel at 0004 GMT, while U.S. West Texas Intermediate (WTI) crude futures fell 52 cents, or 0.5%, to $113.68 a barrel.

EU foreign ministers failed on Monday in their effort to pressure Budapest to lift its veto of a proposed oil embargo on Russia following the country’s invasion of Ukraine. An embargo would require approval from all EU nations.

On the demand side, data from China showed the world’s second-biggest economy processed 11% less crude oil in April than a year earlier amid tight COVID-19 lockdowns, with daily throughput falling to the lowest since March 2020 as refiners slashed operations on weaker consumption.

While Chinese demand drops, in the United States producers are ramping up in order replenish inventories that have dwindled in the wake of Russia’s war on Ukraine – which Moscow calls “a special military operation” – and recovery from the coronavirus pandemic.

Oil output in the Permian in Texas and New Mexico, the biggest U.S. shale oil basin, is due to rise 88,000 barrels per day (bpd) to a record 5.219 million bpd in June, the U.S. Energy Information Administration (EIA) said in its productivity report on Monday.

Inventories in the Strategic Petroleum Reserve fell to 538 million barrels, the lowest since 1987, data from the U.S. Department of Energy showed on Monday.

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Commodities

Oil settles higher on demand optimism, gasoline strength

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© Reuters. FILE PHOTO: An aerial view shows an Idemitsu Kosan Co. oil facility in Ichihara, east of Tokyo, Japan November 12, 2021, in this photo taken by Kyodo. Mandatory credit Kyodo/via REUTERS

By Laura Sanicola

NEW YORK (Reuters) -Oil prices rose on Monday on optimism that China would see significant demand recovery after positive signs that the country’s coronavirus pandemic was receding in the hardest-hit areas.

Brent crude futures for July delivery rose $2.69 to settle at $114.24 a barrel, a 2.4% gain, while U.S. West Texas Intermediate (WTI) crude rose $3.71, or 3.4%, to $114.20 a barrel.

Shanghai aims to reopen broadly and allow normal life to resume for the city’s 25 million people from June 1, a city official said on Monday, after declaring that 15 of its 16 districts had eliminated cases outside quarantine areas.

However, it is estimated that 46 cities in China are under lockdowns, hitting shopping, factory output and energy usage.

“We are seeing a lot of signals that demand will start returning in that region, supporting higher prices,” said Bob Yawger, director of energy futures at Mizuho.

In line with an unexpected sharp fall in industrial output in April, China processed 11% less crude oil, with daily throughput the lowest since March 2020.

U.S. gasoline futures set an all-time high again on Monday as falling stockpiles fuelled supply concerns. [EIA/S]

Stockpiles in the Strategic Petroleum Reserve fell to 538 million barrels, the lowest since 1987, data from the U.S. Department of Energy showed on Monday.

“Record high gasoline pricing has shown no sign of spurring demand destruction with the U.S. economy appearing sufficiently strong to drive a robust kickoff to the heavy driving season in just a couple of weeks,” said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.

Oil prices also found some support as the European Union’s diplomats and officials expressed optimism about reaching a deal on a phased embargo of Russian oil despite concerns about supply in eastern Europe.

However, EU foreign ministers failed on Monday in their effort to pressure Hungary to lift its veto of the proposed oil embargo, with Lithuania saying the bloc was being “held hostage by one member state”.

German Foreign Minister Annalena Baerbock said the bloc would need a few more days to find agreement.

“With a planned ban by the EU on Russian oil and slow increase in OPEC output, oil prices are expected to stay close to the current levels near $110 a barrel,” said Naohiro Niimura, a partner at Market Risk Advisory.

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Commodities

Moscow says G7 attempts to isolate Russia make global food crisis worse

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© Reuters. FILE PHOTO: Ears of wheat are seen in a field near the village of Zhovtneve, Ukraine, July 14, 2016. REUTERS/Valentyn Ogirenko

(Reuters) – Russia’s foreign ministry said on Monday that attempts by the West and the G7 group of nations in particular to isolate Moscow have worsened global food shortages.

G7 foreign ministers promised on Saturday to reinforce Russia’s economic and political isolation, continue supplying weapons to Ukraine and work to ease food shortages stemming from Russia’s Feb. 24 invasion of its neighbour.

“Attempts to divert Russia economically, financially and logistically from long-standing channels of international cooperation are only exacerbating economic and food crises,” the foreign ministry said in a statement on its website.

“It should be noted that it was the unilateral actions of Western countries, primarily from the Group of Seven, that exacerbated the problem of breaking the logistics and financial chains of food supplies to world markets.”

Before the war Ukraine and Russia combined accounted for about 29% of wheat production for the world market.

Moscow calls its actions in Ukraine a “special military operation” to disarm Ukraine and protect it from fascists. Ukraine and the West say the fascist allegation is baseless and that the war is an unprovoked act of aggression.

(Reporting in Melbourne by Lidia Kelly; editing by Grant McCool)

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