The global energy crisis - when will it abate and what does it mean for oil?

As economies recovered from the pandemic hit, soaring demand, combined with a supply crunch sent energy markets reeling. Oil and gas prices surged to multi-year highs before falling. Will the energy crisis ease in 2022? And what will this mean for oil prices?

Energy 3

*This article is part of our 2022 Global Market Outlook collection, where we highlight the key themes, trends, and levels to watch on our most traded products. We’ll be publishing these reports to our pages from December 13-20, so please visit the official 2022 Outlook hub page to see the whole collection!

As the world attempted to bounce back from the pandemic, a combination of surging demand and a supply crunch threw the oil and gas markets into turmoil.

What caused the global energy crisis?

The origins of the energy crisis, which has been particularly acute in Europe, can be traced back at least to last year, if not further. After a particularly long and harsh winter in 2020/21, natural gas inventories were at the lowest level in five years heading into winter 2021/22. Furthermore, gas supply in Europe had been gradually falling over the past decade.

Add into the equation, falling energy production from wind sources owing to calmer weather, suspicions of Russia holding back gas supply, geopolitical tensions surrounding Nord Stream 2 and surging gas demand as economies reopened, and you have the perfect storm for an energy crisis.

Gas chart 

At the peak of the energy crisis in October, European natural gas prices rose to a high of €160 per megawatt-hour, up 750% from the start of 2021. The surge in the price of gas, which is used for electricity generation, sent electricity prices soaring, and even coal prices exploded up 400% across 2021 at its peak.

As a result, oil became the cheaper alternative, boosting demand for oil and sending the prices higher. At its peak post pandemic Brent traded at multi-year highs $86.17 per barrel and WTI at $83.26 per barrel, up around 65% across the year.

Energy crisis to continue into 2022

Intervention from China into the coal markets and rising COVID cases, particularly in Europe, have seen global growth slow, dampening energy demand and pulling prices off the peaks.

However, the energy crisis is broadly expected to continue into 2022. Freezing weather in Europe and political tensions surrounding Russia’s Nord Stream 2 are pushing up prices once again which are spilling over into forward months, suggesting that crisis could last longer than originally expected.

What does this mean for oil?

Oil prices rallied 65% to 2021 high in November and around 50% across 2021 accounting for the recent 15% decline in late November. Whilst the energy crisis has played its part in boosting oil prices, there have been other factor in play such as re-opening demand and OPEC+ output cuts.

The demand outlook for oil is closely tied to economic growth forecasts. According to the IMF the global economy is expected to grow 4.9% in 2022, boding well for solid demand.

The demand outlook for 2022 remains robust. The EIA raised its forecast for 2022 world oil demand growth by 200k barrels per day. This equates to demand growing 3.55 million barrels per day next year. The International Energy Agency (IEA) forecasts a similar rate of growth of 3.4 million barrels per day in 2022.

OPEC has forecast that oil demand will arrive at pre-pandemic levels in 2022.



 Source: OPEC World Oil Outlook 2021

Whilst demand is expected to remain strong, supply is also expected to be on the increase after OPEC+ agreed to press ahead with production output increases, effectively reversing the production cuts implanted across the pandemic.

In addition to OPEC+ reversing output cuts, higher supplies from outside the oil cartel could also be on the cards. Higher oil prices have prompted some US producers to ramp up production. The US is expected to account for 60% of non-OPEC supply gains next year, although US production is not expected to hit pre-pandemic levels until the end of 2022.

It is also worth noting that at the end of 2021, America along with other nations such as India and Japan agreed to release strategic reserves in oil in order to bring the price of oil lower. Whilst the deal was agreed, the reserves have not yet been released as of writing. But should they be released early in 2022, this is likely to have a downward impact of the oil price.

What could slow demand and ease the energy crisis?

Perhaps the two most obvious factors which could pull on oil prices next year would be tighter monetary policy and a resurgence of COVID.

Monetary policy tightening from the Federal Reserve and other major central banks could ease oil demand. Tapering bond purchases or hiking interest rates would be expected to cool overall growth and energy consumption. The Fed started tapering bond purchases in November 2021 and is expected to start raising interest rates, potentially as soon as Q2 2022. Should the energy crisis worsen over the winter months, a rate hike in spring next year could help ease the problem.


A resurgence of COVID or vaccine resistance strains could see energy consumption decline rapidly as mobility declines and demand cools. We saw how the resurgence of COVID pulled on oil prices in November as Omicron was discovered.


Separately rising gas output from Russia could help ease gas prices, which should have a knock-on effect on oil. However, given the rising political tension between Europe and Russia, this could be unlikely. Indeed, rising geopolitical tensions could in fact lift oil prices higher.

Where next for WTI oil?

After rising firmly across the majority of 2021, WTI hit a multi-year high of $83.26. From there the price fell lower, below the 200 sma to an almost 4-month low of $62.26.

WTI is now extending its recovery from this low, rising above its 200 sma in an encouraging sign for the bulls.  A move above the 50 sma at 78.30 could open the door to 80.00 on and on to $85.27 and fresh multi-year highs.

A close below the 200 sma and the key psychological level of 70.00 could spark me interest from sellers. Whilst a move below $62.26 could see sellers gain momentum.

WTI oil chart

Source: StoneX, TradingView

Where next for Brent?

Brent rallied into resistance at $86.17 before falling through the 200 sma to a 4-month low of $66.00.

The rebound from this level has seen the price retake the 200 sma. Buyers will be looking for a move above $80.00 round number and $80.50 the 50 sma to negate the downtrend and target $86.17 for fresh multi year highs. On the downside a move below $66.00 could see sellers gain traction.

Brent chart

Source: StoneX, TradingView


Other markets to consider should gas prices rise again

In addition to trading oil, there are other ways to tap into the energy crisis trade. The surge in gas prices has led to smaller energy companies collapsing, leaving larger energy firms such as SSE to mop up the extra customers.

Elsewhere, the Norwegian Krone could continue to strengthen, should gas prices remain strong. The NOK trades 5% higher versus the EUR since July.



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