10/1/23, 12:52 PM MoneyWeek - 2022-09-02

4 Markets
Will the gas market keep inflating?
Alex Rankine
China’s lockdowns have dampened Asian demand f
liquified natural gas, which has helped Europe stock u
Markets editor
European energy prices are reaching
astounding heights. Wholesale gas prices, as
measured by the Dutch TTF benchmark, hit
€337 per megawatt hour (MWh) last week,
a more than sixfold increase on the price a
year ago. That is as if oil cost $500 a barrel.
Electricity, whose price is closely linked to
gas, has also surged. German and French
power prices for delivery next year have
topped €1,000 per MWh, says Bloomberg.
“UK day-ahead electricity is trading at ten
times its two-decade average.” The price
spike is being driven by pressure to fill gas
storage before winter, says Stanley Reed in
The New York Times. The prospect of a
Russian embargo means energy firms want
to buy up gas at virtually any price.
The Nord Stream 1 pipeline between
Russia and Germany is running at only
20% capacity, with Russia’s Gazprom
repeatedly scheduling downtime for
supposed “maintenance”. UK power gas-intensive industries to switch to other three to four years,” Jonathan Stern of
for December 2022 “is fast approaching fuels, sending gas use down about 14%. “If the Oxford Institute for Energy Studies
£1,000 per megawatt hour”, says Javier these trends continue, outright gas rationing told Euronews.
Blas on Bloomberg. Conversations between may be avoided over winter even without The “Putin shock” is being felt around
traders and managers of the national grid any Russian gas volumes”. Indeed, TTF the world, says Ambrose Evans Pritchard
are “getting scarier by the week”, with talkgas futures tumbled by 21% on Monday, in The Telegraph. High LNG prices are
of “shortages” and emergency planning for although prices remain volatile and prompting South Asian nations to switch
the winter. historically elevated. to coal and Japan to turn back to nuclear
Morgan Stanley analysts say Europe’s power. While stoppages at “gas-guzzling
A multi-year problem LNG import surge has been helped by zinc smelters and fertiliser plants will
The energy picture has improved since weak demand from Asia owing to China’s unleash more “supply-chain horror”, they
panic set in earlier this summer, says Covid lockdowns, says Anviksha Patel for should also take the edge off the gas crisis
George Saravelos of Deutsche Bank. Firstly, MarketWatch. They think that this winter “Gas futures in Europe have essentially
European liquefied natural gas (LNG) may prove “manageable” even “if Nord discounted a full gas blockade” by Russia
imports have surged, leaving German Stream 1 flows fall to zero”. Yet “if those prompting some to wonder if we are close
gas tanks more than 80% full and “on flows don’t recover, the accumulating the peak. “Hedge funds are already itchin
track to completely fill up capacity” by loss next year would then create an to short gas futures”, says Ole Hansen of
October. Secondly, the country has done exceptionally tight winter 2023-2024”. Saxo Bank. For the UK, this winter’s ener
an unexpectedly good job at encouraging “We won’t see ‘normal’ prices... for at least crisis should be “bad but manageable”.

Oil prices find a floor

Oil prices have rallied above Yet the physical market
$100 a barrel after key remains tight amid limited
 members of the Opec cartel
suggested that they could cut
“investment in newoil fields
due to the pandemic and
production. Brent crude environmental pressures”.
futures have fallen 15% since Warnings earlier this year
early June amid fears that a a “1970s-style” oil shock hav
global economic slowdown so far failed to materialise,
will curb the world’s appetite says Derek Brower in the
for fuel. By mid-August prices Financial Times. Six months
had dropped to $92 a barrel. ago, JPMorgan was warning
However last week the Saudi that “Brent oil could hit $300
Arabian energy minister told barrel if Western sanctions o
segamI ytteG©
Bloomberg that producers Russia resulted in a large
were prepared to cut Saudi Arabia appears unwilling to tolerate oil below $90 a barrel shutdown of the country’s oi
“production at any time”. sector”. Yet weak investment
It appears that “Saudi The Wall Street Journal. US could bring more than one in new capacity and Opec’s
Arabia is not willing to tolerate president Joe Biden’s “high- million barrels per day back threat to “neutralise” the
any price slide below $90”, say profile visit to Jeddah in July” onto global markets, but the effect of any extra Iranian oil
Commerzbank analysts in a to sweet-talk the Saudis into rapprochement has irritated suggest that “the supply-
note quoted by Reuters. Iraq, pumping more oil has yielded Riyadh. Oil’s summer slump demand fundamentals that s
Kuwait, Algeria and Venezuela little. The Biden administration has been driven by spooked oil analysts a few
have also backed Riyadh’s has been working on a new speculators, says Anna months ago continue to lurk
stance, says Benoit Faucon in nuclear deal with Iran that Hirtenstein in the same paper. beneath the market’s surface
2 September 2022 moneyweek.c

https://www.yumpu.com/news/en/issue/158124-moneyweek-2022-09-02/read?page=5 1/2
10/1/23, 12:52 PM MoneyWeek - 2022-09-02

4 Markets
Will the gas market keep inflating?
Alex Rankine
China’s lockdowns have dampened Asian demand f
liquified natural gas, which has helped Europe stock u
Markets editor
European energy prices are reaching
astounding heights. Wholesale gas prices, as
measured by the Dutch TTF benchmark, hit
€337 per megawatt hour (MWh) last week,
a more than sixfold increase on the price a
year ago. That is as if oil cost $500 a barrel.
Electricity, whose price is closely linked to
gas, has also surged. German and French
power prices for delivery next year have
topped €1,000 per MWh, says Bloomberg.
“UK day-ahead electricity is trading at ten
times its two-decade average.” The price
spike is being driven by pressure to fill gas
storage before winter, says Stanley Reed in
The New York Times. The prospect of a
Russian embargo means energy firms want
to buy up gas at virtually any price.
The Nord Stream 1 pipeline between
Russia and Germany is running at only
20% capacity, with Russia’s Gazprom
repeatedly scheduling downtime for
supposed “maintenance”. UK power gas-intensive industries to switch to other three to four years,” Jonathan Stern of
for December 2022 “is fast approaching fuels, sending gas use down about 14%. “If the Oxford Institute for Energy Studies
£1,000 per megawatt hour”, says Javier these trends continue, outright gas rationing told Euronews.
Blas on Bloomberg. Conversations between may be avoided over winter even without The “Putin shock” is being felt around
traders and managers of the national grid any Russian gas volumes”. Indeed, TTF the world, says Ambrose Evans Pritchard
are “getting scarier by the week”, with talkgas futures tumbled by 21% on Monday, in The Telegraph. High LNG prices are
of “shortages” and emergency planning for although prices remain volatile and prompting South Asian nations to switch
the winter. historically elevated. to coal and Japan to turn back to nuclear
Morgan Stanley analysts say Europe’s power. While stoppages at “gas-guzzling
A multi-year problem LNG import surge has been helped by zinc smelters and fertiliser plants will
The energy picture has improved since weak demand from Asia owing to China’s unleash more “supply-chain horror”, they
panic set in earlier this summer, says Covid lockdowns, says Anviksha Patel for should also take the edge off the gas crisis
George Saravelos of Deutsche Bank. Firstly, MarketWatch. They think that this winter “Gas futures in Europe have essentially
European liquefied natural gas (LNG) may prove “manageable” even “if Nord discounted a full gas blockade” by Russia
imports have surged, leaving German Stream 1 flows fall to zero”. Yet “if those prompting some to wonder if we are close
gas tanks more than 80% full and “on flows don’t recover, the accumulating the peak. “Hedge funds are already itchin
track to completely fill up capacity” by loss next year would then create an to short gas futures”, says Ole Hansen of
October. Secondly, the country has done exceptionally tight winter 2023-2024”. Saxo Bank. For the UK, this winter’s ener
an unexpectedly good job at encouraging “We won’t see ‘normal’ prices... for at least crisis should be “bad but manageable”.

Oil prices find a floor

Oil prices have rallied above Yet the physical market
$100 a barrel after key remains tight amid limited
 members of the Opec cartel
suggested that they could cut
“investment in newoil fields
due to the pandemic and
production. Brent crude environmental pressures”.
futures have fallen 15% since Warnings earlier this year
early June amid fears that a a “1970s-style” oil shock hav
global economic slowdown so far failed to materialise,
will curb the world’s appetite says Derek Brower in the
for fuel. By mid-August prices Financial Times. Six months
had dropped to $92 a barrel. ago, JPMorgan was warning
However last week the Saudi that “Brent oil could hit $300
Arabian energy minister told barrel if Western sanctions o
segamI ytteG©
Bloomberg that producers Russia resulted in a large
were prepared to cut Saudi Arabia appears unwilling to tolerate oil below $90 a barrel shutdown of the country’s oi
“production at any time”. sector”. Yet weak investment
It appears that “Saudi The Wall Street Journal. US could bring more than one in new capacity and Opec’s
Arabia is not willing to tolerate president Joe Biden’s “high- million barrels per day back threat to “neutralise” the
any price slide below $90”, say profile visit to Jeddah in July” onto global markets, but the effect of any extra Iranian oil
Commerzbank analysts in a to sweet-talk the Saudis into rapprochement has irritated suggest that “the supply-
note quoted by Reuters. Iraq, pumping more oil has yielded Riyadh. Oil’s summer slump demand fundamentals that s
Kuwait, Algeria and Venezuela little. The Biden administration has been driven by spooked oil analysts a few
have also backed Riyadh’s has been working on a new speculators, says Anna months ago continue to lurk
stance, says Benoit Faucon in nuclear deal with Iran that Hirtenstein in the same paper. beneath the market’s surface
2 September 2022 moneyweek.c

https://www.yumpu.com/news/en/issue/158124-moneyweek-2022-09-02/read?page=5 2/2