China has been an astute buyer of global oil. When prices fall due to unfavorable economic data or a geopolitical event, China emerges as a major accumulator of cheap oil.
On the other hand, when oil prices are rising due to positive news, China closes its purse. Analysts struggle to understand how China can be the largest investor in renewable energy while simultaneously being the world’s largest consumer of coal. Interestingly, we have learned that China continues to produce approximately one million barrels of oil per day from the conversion of coal. Can that be cheaper than global supplies, or is this an insurance policy?
As we head into winter, historically a low oil-demand period, global inventories are likely to build. How high? Bearish oil traders expect weakening demand and rising OPEC exports to crush oil prices. However, others foresee overstatements of OPEC member oil production figures and understatements of global demand, the perfect recipe for higher oil prices.
US consumers can feel more confident about the upcoming winter heating oil market, as distillate inventories have increased and total storage volumes are nearing the five-year average. Unfortunately, we are approaching the seasonal inflection point, where inventories begin to fall as colder temperatures boost consumption.
People are hopeful that there will be sufficient distillate inventory when cooler temperatures arrive. Moreover, while unseasonably warm weather is present, weather conditions suggest we could experience a severe winter, which would consume even more distillate fuel. Few forecasters have factored such a scenario into their oil demand projections and crude oil price forecasts.
A notable development is the International Energy Agency’s (IEA) admission that its approach to modeling the world’s future energy mix, which assumes aspirational climate change policies, is flawed and misleading. As a result, it has abandoned these aspirational scenarios and reinstated its Current Policies Scenario, which assumes that current policies continue. This scenario calls for 10 percent more oil use in 2050 than is currently consumed, and substantially more than its prior forecasts. This return to reality forecasting has brought the IEA back to its original mandate, as established in 1974, of prioritizing energy security over all other considerations.
As recession fears fade and geopolitical events unfold, the energy world struggles for direction. The future will likely become clearer as we approach 2026.
NATURAL GAS
We are in the second half of the hurricane season. So far, this season has been quieter than predicted, with no storms making landfall in the US. That doesn’t mean the risk of disruption to US offshore energy production doesn’t exist; it remains so until no more energy waves are coming off the African continent. The greatest US risk from hurricanes is their impact on the Gulf of Mexico’s natural gas production and infrastructure.
Absent a hurricane impact, the domestic market for natural gas remains tied to the upcoming winter demand. Currently, natural gas in storage remains midway between the 5-year average and the 5-year maximum. It is currently aligned with the amount of gas in storage at the same time last year. What may be different this year from last is the upcoming winter. In the winter of 2024–2025, there were brief periods of extreme cold. Overall, the winter was mild. This winter could be different.
Sandi Duncan, Editor of the Farmers’ Almanac, said, “Most of the country is on tap for a cold or very cold winter, kind of almost going back to an old-fashioned winter. It’s going to cool down, it’s going to snow, then it might warm up a little, then it’s going to repeat itself again.” She expects this winter to last longer than recent winters, adding increased demand for natural gas for home heating, especially in the northern half of the US.
A more scientific perspective is provided by the National Oceanic and Atmospheric Administration, which highlights a growing consensus for a weak La Niña weather event in the South Pacific. Such a condition leads to a weaker Polar Vortex, allowing colder Arctic air to escape the jet stream and flow south into North America and Europe, producing colder temperatures during the winter.
Globally, LNG demand remains healthy and could strengthen if Europe elects to ban more Russian natural gas and LNG from its markets. In anticipation of such a move, Russia has begun delivering LNG from its Arctic plant to China. In the longer term, the two countries have agreed to construct a new pipeline from Siberian gas fields through Mongolia and into northern China. As yet, no price terms have been agreed to, so this pipeline will be years away, if it is constructed at all.
The project’s announcement sent fear through the LNG market over the potential loss of a portion of the Chinese LNG trade. Such concerns, while legitimate, may be premature. Moreover, there will be sufficient time for LNG developers to rein in the construction of additional export capacity, preventing a long-term glut. However, natural gas’ role in the future energy mix will increase, as it remains a lower-carbon-emissions alternative fuel and provides greater flexibility in its use.
US gas prices remain low, with the expectation that increased use of AI and additional data centers, which require 24/7 power supplies, will drive greater consumption of natural gas. That additional supply will only come at the expense of higher domestic prices.
NATURAL GAS MARKETS PLAY THE WAITING GAME FOR WINTER AND MORE LNG EXPORTS
GLOBAL GLUT CONCERNS COLOR OIL DEMAND PREDICTIONS AND CURRENT PRICING
This feature appeared in ON&T Magazine’s 2025 October Edition, Subsea Infrastructure: Integrity & Security, to read more access the magazine here.
