Is There an End to Gas Price Volatility?
Learn about the energy crunch in Europe and its effects on oil tankers, gasoline shortages, and natural gas prices.
Natural Gas Prices and the Weather
A week into December, natural gas storage rooms in Europe were about 90% full, down from 96% in the middle of November. Gas prices dropped despite the chilly weather, which boosted demand for heating fuels, and one big reason was the large scale of LNG (liquefied natural gas) imports from the US. “We now expect two-thirds of all US LNG cargoes to land in Europe this year”, said Kristy Kramer of Wood Mackenzie.
December 5th saw the kick-off of new EU (European Union) sanctions on Russian crude oil, and they succeeded, in their first week, in cutting down the total volume delivered from Russia by 54%. Because the EU forbade the selling of Russian oil for more than $60 a barrel, the owners of two oil tankers had to hold their ships back from Kozmino, Russia where the oil was selling for more than that. Russian president Vladimir Putin even watched crude shipments to his biggest buyers – Turkey, India, and China – go down in the month before December 16th, and found his war machine a bit more strapped for cash.
Moving into Eastern Europe and Hungary, the acute shortage of gasoline at the start of December put a swift end to the nation’s cap on fuel costs. Gasoline prices straightaway shot up by 46%. Cabinet Minister Gergely Gulyas said the EU was at fault for instituting Russian sanctions.
The energy crunch in Europe has been keeping commodity prices volatile, and volatility is the bread-and-butter of CFD traders. If you’d like to start trading commodities with iFOREX as CFDs, join us now for a closer look at natural gas prices as the year prepares to time out.
Prices Changing with the Weather
Northern Europeans were cold in the first half of December but, at mid-month, forecasters said conditions would warm up, which sent benchmark natural gas futures down by 4% on the 14th of the month. Another factor pushing down prices was an expected boost in wind power in the following week, which would mean less electricity would have to be generated by gas. Despite the slump in prices, gas was selling for quadruple its average for this time of the year.
The very next day, however, there were indications the chilly weather would return before the end of the year, and benchmark futures went up 3.3%. Europeans had enjoyed the benefits of a mild autumn and full storage rooms until this point. “Now we need to make sure we continue to save energy and we need to make sure we continue to access LNG”, warned Jean-Pierre Clamadieu of Engie SA. One potentially big bullish factor for gas prices was the pumped-up demand expected to come from a China newly liberated from Covid restrictions.
EU Price Cap
In mid-December, EU nations had trouble agreeing on a proposed cap to natural gas prices, with Greece, Italy, and Belgium ready to commit, but Denmark, Holland, and Germany on the prudent side. The Czech representative thought a price cap as low as 200 euros per megawatt hour was reasonable. “Europe does not have time to lose”, urged the Czech minister, Josef Sikela.
Later in the month, Capital Economics said it was probable that no price cap would materialize next year. “It seems the only thing countries agreed on was that a cap was indeed needed to show unity”, they suggested.
The weather factor then shook things up again, because conditions in the third week of the month turned out to be less cold than anticipated, and more of the same was now expected. Benchmark futures were down as much as 9% on December 21st, after three consecutive days of price declines. In addition to the weather, “routine lower industrial demand over Christmas” also kept prices humble, according to Tom Marzec-Manser of ICIS.
Looking Forward
Anticipated lack of gas flows from Russia in 2023 will mean Europe will have to import huge amounts of LNG, says Trafigura Group. They believe “Europe should avoid a blackout this winter by drawing on inventories and cutting demand”, but they also said that “We expect gas and LNG markets to remain volatile”.
Volatility, as we said, is just what CFD commodity traders search for, as they provide both trading opportunities and risks on a number of commodities like gasoline, oil, and natural gas. If you’re planning to start trading commodities with iFOREX as CFDs, watch out for news about the obstacles faced by oil tankers in coming weeks, especially as a result of EU sanctions on Russian oil. With respect to gas, let’s wait and see how Chinese demand responds to the relaxation of Covid restriction in months to come.
