Europe is trying painfully to disassociate itself from Russian gas that Moscow uses as leverage.
The European price of gas continued its inexorable rise this Friday, driven by the difficulty of the European Union to accumulate sufficient reserves to be able to dispense with Russian exports during the winter without creating shortages.
The Dutch TTF futures contract, the benchmark for natural gas in Europe, was trading at 249.00 euros per megawatt hour (MWh) around 11:50 GMT (13:50 in Paris), a level not seen in session since the extremely volatile early days of the Russian invasion of Ukraine. On Thursday it even closed at an all-time high, at 241 euros per megawatt hour. However, it is still far from the historical peak in the session reached on March 7 at 345 euros.
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Shortage in some German regions this winter
Germany’s energy regulator warned on Thursday that the country is at risk of not meeting its reservoir-filling target set by the government of Olaf Scholz. The head of the regulator, Klaus Müller, warned that shortages were to be expected in some regions during the winter and that “it was not a matter ofnot one winter but at least two, and the second winter could be even harderEurope is painfully trying to disassociate itself from Russian gas, on which Germany is especially dependent, and which Moscow is using as a means of pressure in the context of its invasion of Ukraine.
In Germany, from October 1, importers will be able to charge 2.4 cents more per kilowatt hour (KWh) of gas to companies and individuals. Even if the government has promised to write it off for the most modest “.October bill shock should lead to reduced demand from households», comment the analysts of Deutsche Bank.
Significant electricity consumption due to heat waves
Electricity, for its part, mechanically follows the evolution of gas prices, because the market looks at the cost of the gas (and coal) plants called to the rescue to ensure the balance of the system. prizes were raffledby low wind levels (for wind) as well as the high costs of coal- and gas-based electricity“, Rystad Energy analysts underlined. At the same time, an especially hot summer limited electricity production: the heat wave affected the cooling systems of nuclear power plants, and the drought prevented barges from carrying coal to German plants.
However, the heat wave stimulates electricity consumption for air conditioning and ventilation, limiting the usual drop in the summer months. Electricity for delivery next year in Germany topped 500 euros per MWh for the first time in recent days, up from just over 300 euros in early July. “This could be Europe’s biggest energy crisis in at least a generationwarns John Plassard, an analyst at Mirabaud.
Fall in oil prices
Less dependent on the European market, oil prices weakened on Friday -2.07% to $94.59 for the European benchmark, North Sea Brent for October delivery, and -1.99% to $88.72 for the American West Texas Intermediate (WTI) that expires in September. “There are plenty of reasons to bet on a dip, but market participants seemed to have forgotten about them for two sessions.commented Stephen Brennock, analyst at PVM. He notes that volumes are particularly thin this summer, promoting more price volatility and prompting the analyst to give little credit to the rally that began on Wednesday after a surprise drop in US stocks.
“A global recession that would destroy demand remains the main concern, with disappointing data coming from the euro zone and China.“, he adds. On Friday, the strength of the dollar, driven by the prospect of a tightening of monetary policy in the United States, also weighed on oil. With the dollar being the reference currency of the oil market, its rise weighs on the power purchasing power of investors using other currencies.
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