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ICE warns EU about how gas price cap affects the economy

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gas prices affecting the economy

ICE has warned the European Union that an attempt to cap the price of gas on the TTF index (Europe’s largest hub, located in the Netherlands) will likely only make it more expensive. The cap on gas prices will have a very significant effect on the economy. 

“In a memo sent to the European Commission, ICE, which trades on the TTF index, said the proposal to cap natural gas prices could lead to even higher prices, despite the fact that the initiative itself is designed to mitigate the effects of gas price hikes,” the agency wrote.

The gas price effect on the economy is hard to overstate. As Reuters notes, the note also says that liquidity providers are likely to buy short positions and stop selling TTF gas futures if prices rise even relatively close to the cap to hedge against the risk of holding those positions. According to ICE, the resulting shortage of sellers in the TTF market will result in higher prices.

On November 22, the European Commission proposed introducing a ceiling price for a monthly TTF futures price of 275 euros per MWh (a little over $2,800 per thousand cubic meters of gas at euro and dollar parity). However, on November 24, EU energy ministers didn’t agree on a price cap and postponed a decision until a meeting scheduled for December 13. As the Financial Times reported earlier on Tuesday, the EU countries are considering reducing the proposed gas price ceiling from 275 to 220 euros per MWh (2,275 euros per thousand cubic meters).

According to the previously proposed idea of the European Commission, the mechanism should be launched under two simultaneous conditions: the estimated monthly futures price on the index of Europe’s largest gas hub TTF exceeds 275 euros per MWh for two weeks, and the spread between the TTF price and the global price of LNG is at least 58 euros for 10 consecutive trading days.

When the mechanism is in place, there will be no corresponding trades above €275. However, this is a very high level. The settlement price of the TTF monthly futures has exceeded €275 for only a few days in the history of this hub in August this year. On August 19 it was at around €245 per megawatt hour, skyrocketed to a historic high of above €340 on August 26 (just over €3,500 per thousand cubic meters), and quickly declined to around €265 as early as August 30.

Earlier we reported that the inflation rate in the euro zone was close to its peak.

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U.S. dollar index moved to decline

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The U.S. dollar index fell on Thursday after the U.S. Federal Reserve signaled to the market that the end of the central bank’s rate hike campaign was near, Reuters wrote.

Investors were upbeat about Fed Chief Jerome Powell’s hint on Wednesday that the world’s biggest economy had begun to deflate, though he signaled that interest rates would continue to rise and that no rate cut was in sight for now.

The dollar index today fell to a new 9-month low of 100.80 following the Fed’s announcement Wednesday after officials agreed to raise rates by 25 basis points at the end of its two-day meeting, the first explicit acknowledgement by the central bank of a slowdown in inflation.

It was last down 0.07% to 100.88, ending a decline of more than 1% on Wednesday. The Australian dollar rose to an eight-month high of $0.7158 in early Asian trading Thursday and last traded at $0.7150 after rising 1.2% in the previous session.

The New Zealand dollar also hit a new eight-month peak of $0.65365 after rising more than 1 percent Wednesday. Against the Japanese yen the dollar fell more than 0.5 percent to a low of 128.17.

Today the European Central Bank and the Bank of England will announce their interest rate decisions. Each rate is expected to rise 50 basis points. The Euro/U.S. Dollar rose to about a 10-month peak of $1.1034 on Thursday and was last up 0.3% to $1.1023, while the pound rose 0.14% to $1.2392.

Inflation in the euro area fell for the third straight month in January, data showed Wednesday. But underlying price growth remained steady despite falling energy prices.

Earlier we reported that Toyota remains the world leader in auto sales

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Toyota remains the world leader in car sales. Toyota Motor Corp stock prices rise

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Toyota Motor Corp (TYO:7203). remained the world leader in auto sales in 2022, widening its lead over its nearest competitor, Volkswagen (ETR:VOWG) AG. Toyota’s sales fell 0.1% last year to 10.48 million vehicles, the Japanese company said in a press release issued Monday. Toyota Motor Corp stock prices are rising on the back of positive reports. 

Volkswagen said earlier this month that its 2022 sales fell 7 percent to 8.3 million vehicles, an 11-year low.

Toyota has outpaced Volkswagen in sales for three years in a row, Bloomberg notes. At the same time, both companies, like other global automakers, may face a decline in demand as global economic growth slows.

Toyota hasn’t complained about the drop in demand so far, saying it still can’t cut delivery times for customers who have to wait months or even years for some models. This demonstrates that the Toyota Motor Corporation business model is working. 

The Japanese company aims to sell 10.6 million vehicles in the next fiscal year, which begins in April. At the same time, it warns that deliveries could be 10% lower than expected if shortages of individual components, particularly chips, persist.

S&P Global Mobility experts believe Toyota will continue to widen its sales gap with Volkswagen in 2023, predicting the Japanese automaker’s deliveries of 10.4 million vehicles versus 7.99 million units for Volkswagen.

Volkswagen sales will begin to recover in 2024, S&P Global Mobility predicts. At the same time, sales of passenger cars of Toyota by the end of this decade, according to experts, will reach 11 million per year.

Earlier, we reported that spot prices for LNG in Asia are significantly higher than in the U.S. and Europe.

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Spot LNG prices in Asia are significantly higher than in the U.S. and Europe

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LNG prices today

Spot LNG prices in Asia jumped to record highs in January due to low stocks of this fuel, cold weather, global disruptions in production and delays in shipment. Asian LNG prices today are significantly higher than LNG prices in the U.S. and Europe, which creates arbitrage opportunities for sellers, writes Euractiv.

The winners in this situation are large oil and gas companies that have access to different sources of fuel as opposed to traders and non-integrated producers, experts say.

Shell and TotalEnergies (NYSE:TTE) could divert tankers with U.S., Nigerian and Qatari LNG bound for Europe to Asia.

“Some of our long-term contracts provide for a change of direction. Where possible, we divert LNG shipments to premium markets,” a top executive at a major company told the publication on condition of anonymity.

The difference in regional gas prices, excluding transportation and related costs, is quite significant, Euractiv says. For example, the cost of contracts with delivery in February at the U.S. Henry Hub is $2.6 per million British thermal units (BTU), at the Dutch TTF – about $10 per 1 million BTU, in Asia – about $30 per 1 million BTU.

Most of the LNG in the world is sold under long-term contracts, and only about 10% of all deals are on the spot market. The current price hike has mainly affected the spot segment of the market.

“LNG in the spot market in Asia right now is like rolls of toilet paper in a pandemic – you look at the empty shelves and grab the last one at any price,” says another industry senior executive.

Rising LNG prices could give an impetus to Qatar to rapidly expand its projects in this area, and it also supports many of the U.S. fuel production facilities, experts say.

At the same time, the current situation poses a threat to the formation of a flexible spot LNG market, as it is likely to push many sellers to enter into long-term contracts, Euractiv writes.

Earlier we reported that the dollar index returned to growth.

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