Current situation on the gas market: a gas war breaks out in the world
There is discord in Europe: some countries urgently want to reconcile with Russia; others want to buy gas from Nigeria. All this has a strong impact on the European gas market.
Natural gas market news – market situation
The European gas market has been shaking for many months now, but as we approach autumn the panic is getting worse. While Russia is sorting out problems with the delivery of the turbine for Nord Stream, the EU countries are actively looking for an opportunity to fill their storage facilities and at the same time convince their citizens that they should heat their apartments less in winter. And while citizens will be left with no alternative, the industrial enterprises still need energy to operate.
Against this background, European politicians are actively looking for a way out of the situation they have created. They realize that they will not be able to reduce gas consumption. This is the opinion of a lot of countries, which demand preferences and do not want to meet the requirements of the EU authorities to voluntarily reduce gas consumption by 15%. According to the Financial Times, it is necessary to cancel such a requirement for at least five countries of the bloc.
Most countries of the European Union have already begun to save money on everything. In France, they are intensifying measures to save electricity – they will restrict light advertising and prohibit stores with air conditioners to keep their doors open, said Minister of Energy Transformation Agnès Pannier-Runache.
All new proposals to diversify supplies, even the most exotic ones, are in circulation. For example, Matthew Baldwin, deputy director general of the European Commission’s energy department, said that the EU is looking to arrange additional gas supplies from Nigeria. Baldwin said that the EU imports 14% of its total LNG supplies from Nigeria, and there is the potential to more than double this figure.
Oil and gas production in Nigeria is limited by theft and pipeline vandalism, leaving the terminal of gas producer Nigeria LNG Ltd. on Bonny Island operating at 60% capacity. But if supplies rise to at least 80 percent, it will make Europe feel more secure.
Hot and cold weather will continue to weigh on the natural gas market
Gas market prices in Europe rose to $1,700 per 1,000 cubic meters last week. The Nord Stream 1 pipeline is up, and running, but it is pumping about 40 percent of its operating capacity, roughly the same as before the shutdown for maintenance. The Siemens turbine has not yet arrived in Russia, which leaves some risk of further low pumping.
Europe’s UGS capacity was 66.24% as of July 23, increasing by 3.7% over the week. EU members oppose the EU’s demand for a 15% reduction in gas consumption. Germany raised its gas storage target to 95% for the Nov. 1 state.
In the US, the Henry Hub (CME futures) gas price continued to rise to $8.299/mmbtu ($297 per 1,000 cubic meters) amid a supply shortfall due to accidents, seasonally higher consumption and high export demand. Natural gas inventories in U.S. natural gas storage facilities continued to grow, but the rate of growth slowed significantly due to rising consumption. On a year-over-year basis, storage inventories as of July 15 remained 10.1% below year-ago levels and 12.09% below the level of the past five years.
The price of natural gas in Asia on a JKM basis fell slightly to $38.09/mmBTU, or $1,460 per 1,000 cubic meters. Japanese and Taiwanese buyers are once again entering the spot natural gas market with purchases for the coming winter. Japan’s LNG imports for the first six months of 2022 were 3.5% lower than in the same period in 2021. China has also reduced purchases due to coronavirus restrictions.
The oil and gas markets will remain tight in the near term. Prices will directly depend on the supply situation, but they are not expected to ease any time soon. Demand will continue to rise with the coming hottest summer month (August), and gas pumping into storage facilities will increase pressure on the market.
Pressure from both sides will stabilize the price
The European gas market showed a slight increase on Monday, from $1,690 to 1715 per 1000 cubic meters. It continues the recent technical correction after a slight drop from $1,900 to $1,500 at the start of last week.
The natural gas market price is under pressure from opposing strong factors. Its marked “descent” for energy carriers after the June panic is connected not only with the current conjuncture, but also with the growing fears of the impending recession in Europe and the USA. At the same time, high inflation (8.6% in the eurozone and 9.1% in the United States) and higher central bank interest rates are hindering economic growth.
The eurozone is in a tricky situation, with prices rising from 8.6% to 8.7%. This could be perceived as an increase in inflationary expectations, which would also affect the growth of gas prices. Its price, by the way, is also supported by previous fears of a physical shortage of gas for autumn-winter in Europe due to insufficient supplies.
Thus, the combination of multidirectional, strong and little predictable drivers of gas quotations will keep them in the same established range of $1,500-1,900 this week.
Brent crude oil futures its lowest since 2021 amid banking crisis
The cost of May futures on Brent crude oil fell to $72.74 per barrel, losing 0.31%, according to data from the ICE exchange. Brent was trading at about $70 a barrel at its low for the day. That’s a record low for at least 15 months, that is, since December 2021.
WTI prices are also falling, with futures prices down to $66.43 a barrel (-0.46% from last week’s close), according to the exchange. WTI was trading at $64.12 a barrel at its low for the day. This is also the lowest value since at least December 2021.
The market is thus responding to the banking crisis: since the beginning of March, three banks (Silvergate Bank, Silicon Valley Bank, Signature Bank) have closed their doors in the US, and the day before, on March 19, Swiss UBS took over its rival, Credit Suisse, buying the bank for $3.2bn amid fears of its collapse. Investors fear a recession, which may cause a crisis in the banking sector, as a recession, in turn, would lead to lower demand for fuel, the agency said.
“Oil prices are moving mainly because of fears [of further oil price dynamics]. Supply and demand fundamentals are almost unchanged, only the banking problems have an impact,” said Price Futures Group analyst Phil Flynn.
Oil prices lifted from daily lows helped the S&P 500 and Dow Jones indices, which rose Monday, writes Reuters. Traders raised their expectations that the U.S. Federal Reserve would refuse to raise rates this Wednesday to protect financial stability amid banking problems, the agency noted.
“Volatility is likely to persist this week, with broader financial market concerns likely to remain at the forefront,” ING Bank analysts said in a note. They add that the impending Fed decision adds to uncertainty in markets.
Earlier we reported that the price of Brent dropped below $75 per barrel for the first time in more than a year.
Gold prices will reach $2,075 “in the coming weeks”
Gold prices may continue to rise, analysts polled by the CNBC TV channel said. In their opinion, the difficulties of banks and a possible turning point in the policy of the Federal Reserve indicate the possibility of a new rise in gold prices.
“I think it’s likely that we’ll see a strong move in gold in the coming months. The stars seem to be aligned for gold, and it could soon break new highs,” said Craig Erlam, senior market analyst at brokerage Oanda.
The expert explained that interest rates are now at or close to their peak, and the market, amid recent developments in the banking sector, is laying on an earlier than previously expected start of rate cuts. They also added that this situation would boost demand for gold even if the U.S. dollar weakens.
This month, Fitch Solutions rating agency predicted that gold prices would reach $2,075 an ounce “in the coming weeks” amid global financial instability, writes RBC. The company also added that gold prices will remain at a higher than pre-pandemic levels in the coming years. Craig Erlam confirmed this forecast.
Other Wall Street experts are also predicting a long-term rise in gold prices. For instance, Tina Teng, analyst for British financial company CMC Markets, thinks that the U.S. Federal Reserve’s sooner departure from its policy of raising interest rates might provoke another rally in gold prices due to the weakening U.S. dollar and falling bond yields.
Earlier we reported that oil prices accelerated their decline, continuing a trend from the beginning of the week.
Analysts at U.S. bank Goldman Sachs revised its forecast on oil prices
Analysts at U.S. bank Goldman Sachs, one of the most optimistic forecasts about the cost of oil, changed its earlier forecast about the growth of oil prices to $100 in the next 12 months, Bloomberg said.
Now analysts predict that Brent crude oil will reach $94 per barrel in the next 12 months and $97 per barrel in the second half of 2024, the publication said.
The bank said oil prices have fallen despite rising demand in China, given pressure on the banking sector, recession fears and investor withdrawal.
“Historically, after such traumatic events, price adjustments and recoveries are only gradual,” the bank notes.
This week, the situation surrounding Swiss bank Credit Suisse triggered panic in the markets as oil plummeted to a 15-month low and Brent crude fell 12% to below $73 a barrel.
After the price decline, the bank expects OPEC producers to increase production only in the third quarter of 2024, contrary to Goldman’s forecast that it will happen in the second half of 2023. Analysts at the bank believe a barrel of Brent blend will reach $94 in the next 12 months and trade at $97 in the second half of 2024.
Bloomberg reported that the largest oil exporter, Saudi Arabia, announced higher April oil prices for markets in Asia and Europe.
Earlier, we reported that Iraq and OPEC advocated for guarantees of no fluctuations in oil prices.
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