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Scholz confirms Germany’s intention to buy 30% of Uniper shares

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Gas crisis forces EU governments to use this mechanism more and more often.

German Chancellor Olaf Scholz at a press conference in Berlin, said that the German government will buy 30% of the shares of the energy concern Uniper to save the company during the financial crisis amid falling gas supplies from Russia, reports the German newspaper Hadelsblatt. 

According to him, the shareholders and the Finnish government have informed the German authorities about the agreement. Uniper shares will be bought back at a face value of 1.7 euros per share, he said. In total, the government will buy back about 157 million common shares worth 267 billion euros. 

It is also specified that the German government will finance the company for 7.7 billion euros as part of aid to Uniper in the financial crisis. Also, the state development bank (Kreditanstalt fur Wiederaufbau, KfW) will have to increase the amount of loans from 2 billion to 9 billion euros.

The government also noted that 90% of the additional costs for the company to purchase more expensive energy from other suppliers will be distributed among consumers. The mechanism will come into force on October 1. According to the chancellor, the fee will cost each family of four about 200-300 euros a year. 

In early July, Uniper, in which the Finnish company Fortum owned a 78 percent stake, asked the German government for help. After Gazprom cut its gas through Nord Stream by 60%, the company began buying hydrocarbons from alternative suppliers at prices significantly higher than those specified in its contract with the Russian supplier.

Fortum of Finland will hold 56% of the shares and will maintain its status as the power concern’s blocking shareholder upon completion of the deal. 

Uniper is the majority owner of the Russian power generating company Unipro, owning 83.73% of its shares. Uniper started the process of selling its stake in Unipro at the end of last year, but it was halted this spring. The company said it would continue the process of selling its stake in the Russian asset as soon as possible.

Uniper is Germany’s largest importer of Russian gas

July 18, Reuters reported that the concern has received a letter from Gazprom with a message of force majeure circumstances on the supply of gas from June 14. The agency specified that Gazprom explained the inability to meet contractual obligations to export gas “extraordinary circumstances beyond its control”. Uniper said the statement was unfounded and officially denied force majeure.

According to Reuters, Gazprom has also sent a similar letter to RWE. In mid-June, exports of Russian gas through the pipeline Nord Stream (55 billion cubic meters of gas per year) decreased by 40% because of problems with the equipment being repaired in Canada. On July 21, Nord Stream resumed its flow, but only 40 percent of the pipeline was used.

The German government is implementing a “soft” nationalization scenario for Uniper

The German government agreed on a project for the nationalization of energy companies back on July 5, which, however, did not point to Uniper directly at that time. Now we are talking about nationalization of the stake in the company with compensation of its value to shareholders. De jure, the transfer of shares in state ownership is formalized as a market transaction, but Uniper could not fail to sell its shares.

Against the background of the energy crisis, similar mechanisms of nationalization of the infrastructure of oil and gas companies may be used in other EU countries in relation to other market players.

In late June, the German Finance Ministry came up with the initiative to nationalize the German part of the gas pipeline Nord Stream – 2 (designed capacity – 55 billion cubic meters per year), reported Spiegel, citing sources. 

But the acquisition of Uniper by the German government should be seen more as an anti-crisis management than as a new, deliberate change in state policy. The energy market in the EU in general and Germany in particular is in crisis not only because of the decline of gas supplies from Russia: it is also affected by a sharp increase in spot prices, to which long-term contracts were tied, the lack of available volumes on the market, the decline of own production in the EU and a lot of other factors.

In Europe, spot gas prices remain high. On July 22, the TTF hub in the Netherlands had an August futures price of about $1,700 per 1000 cubic meters.


Brent crude oil futures its lowest since 2021 amid banking crisis

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Brent crude oil futures

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.

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Gold prices will reach $2,075 “in the coming weeks”

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Gold prices will reach

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.

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Analysts at U.S. bank Goldman Sachs revised its forecast on oil prices

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oil price forecast

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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