295 euros per megawatt hour (MWh). The Dutch TTF futures contract, the benchmark for the European natural gas market, reached a level not seen since the very volatile early sessions following Russia’s invasion of Ukraine.
In question, the cut by the Russian gas giant Gazprom of Russian gas shipments to Europe through the Nord Stream 1 pipeline: they will be interrupted for three days, from August 31 to September 2, for “maintenance” reasons.
If “by itself, a brief closure of the pipeline would not make a big difference”, Ludwig Möhring explains that this news highlights two risks: that Russia “mistakenly claims that it cannot reopen the pipeline” under the pretext of a new technical problem, or close its other gas pipelines that supply Europe.
Bjarne Schieldrop of Swedish bank Seb predicts an “extremely difficult” energy situation in Europe this winter, arguing that Russia could play “flat out” by further reducing natural gas exports, especially “whenever the weather forecast is really cold.”
Mechanically, electricity prices for delivery in early 2023 in Germany were boosted on Monday to exceed 700 euros, while the historical norm is 40 euros per MWh, according to Schieldrop. For electricity in France at the beginning of next year, the MWh reached 840 euros. Therefore, “the recession in Europe is a certainty”, concluded, in a note, Eduardo Moya, from Oanda.
An OPEC intervention?
In the United States too, natural gas soars, and its price rose on Monday to $9,982 per million British thermal units (BTU), an Anglo-Saxon unit of measurement, for the first time in 14 years. This movement is linked to the heat wave that several American regions experience during the summer.
It increased power needs, especially for air conditioning, while low water levels at several hydroelectric facilities in the west limited renewable electricity production.
Stockpiles, still 12% below their five-year average, could not be replenished, creating market stress as fall approached.
Compared to the extreme prices of natural gas and electricity in Europe, crude oil now looks “exceptionally cheap”, notes Bjarne Schieldrop.
Extreme gas prices create a situation with an “extremely destructive effect on the European economy”, raising demand fears and thus weighing on crude prices.
After sinking at the beginning of the day on Monday, prices recovered, however, to end up close to balance, thanks to statements made to the Bloomberg agency by the Saudi Energy Minister, Abdulaziz bin Salman.
The official estimated that the current volatility of the oil market and the fall in prices, which prematurely integrate, according to him, a marked economic slowdown, could justify a drop in production by the Organization of Petroleum Exporting Countries (OPEC +).
A barrel of North Sea Brent crude, Europe’s crude benchmark, for October delivery fell just 0.24% to settle at $96.48. Its US equivalent, West Texas Intermediate (WTI), lost 0.59% to $90.23 a barrel.
For Andy Lipow, an OPEC production cut would not be enough to significantly boost oil prices, because “Europe is headed for a recession and the economic impact will be felt all over the world” and will weigh on demand, and therefore So about prices.
Another factor supporting black gold, “the long overdue US response to Iran” in the Iranian nuclear dossier, a week after Tehran submitted its proposals for the latest offer put forward by the European Union to try to salvage the international deal 2015. The financial markets no longer believe in a deal.
Source: BFM TV
