The great risk facing the global economy in recent years has been the emergence of inflationary pressures, a trend that has forced the central banks and governments of the major economies of the planet to take measures to mitigate these pressures. The energy price was the first catalyst that led to inflation increases, and gas was the main catalyst. The rise in the price of the raw material was the source of great concern in Europe during the summer of 2021 and the following months, but in 2023 calm returned to the gas markets, and the worst fears that pointed to a new harsh winter due to the rise in the prices of energy resources, disappear. Moreover, summer 2024 gas futures are already being paid at a higher price than those for January.
This week, the price of gas dropped to… Lowest levels since September. Specifically, the price in Europe lost 35 dollars, reaching 34.7 euros per megawatt-hour this week, which represents a decline during the year of more than 54%, and is the raw material that is becoming cheaper in the list of 34 compiled by Bloomberg. Looking to the coming months, markets are buying that gas will not cause major concerns for households: January futures are trading cheaper than those for June, which remain at around 34.75 euros.
This indicates that investors now believe that tensions are likely to impact gas prices in the summer, a time when the commodity also sees seasonal spikes in demand to combat rising temperatures.
The past two weeks have raised concerns among some experts, due to the possibility that the cold wave that struck Europe, especially the north of the Old Continent, will lead to an increase in demand for gas, which will lead to a decrease in stocks and a significant rise in gas prices. . After the end of the cold wave, meteorological forecasts indicate moderate temperatures in the coming months, Markets assumed that this winter would likely be quiet, As it was before.
Although the gas problem persists, as 100% stocks in Europe would not supply the continent for much more than a month, gas supplies remain somewhat of a problem due to the lack of investment in new production that has occurred in recent years, the latter of which the situation appears to be improving. The presence of warehouses at almost full capacity helps maintain calm in the markets. “The global gas market points to further price declines in the long term as supply availability improves,” explains Norbert Röcker, chief economist at Julius Baer. “In the short term, temperatures are forecast to be milder, with an exceptionally strong showing.”He continues, highlighting how “stock levels should remain above average, which will allay any concerns about supply shortages.”
An ally of the economy and the European Central Bank
High energy prices have been at the heart of the recent economic crisis in Europe, as energy costs have forced companies to increase their prices, which threatens to create an inflationary spiral that will be difficult to resolve in the medium term if it becomes a chronic phenomenon. . This is why it is so important that the gas drops to its current levels.
Energy prices falling, and stabilizing at levels lower than those seen last year, is one of the factors that central banks need to see in order to ensure that inflation is on track towards 2%. If this trend continues as before, with inflation falling to 2.4% in the November reading in the eurozone, this will allow the ECB to cut interest rates, and mitigate the increase in financing costs for companies that would reduce their margins and trading profits.
The European Union wants to stop imports of Russian gas
Gas remaining cheap in the coming months is not only key to the good performance of the European economy. On the geopolitical front, the price of gas also plays a fundamental role for the European Union. Support for Ukraine in the war against Russia has over the past two years been marred by Europe’s dependence on Russian gas imports, which is in direct conflict with Ukraine’s strategy of protecting against its eastern neighbour.
Russia relies heavily on the income it receives from exporting energy resources to finance its invasion, and falling gas and oil prices are hurting the country under the leadership of Vladimir Putin.
That same week, the European Union reached an agreement to begin drafting a regulation banning the purchase of liquefied natural gas from Russia, a rule that would attempt to prevent the bloc from financing Russia while condemning the invasion of Ukraine. The Council added, “The regulation will include provisions that allow member states to restrict supplies of natural gas, including liquefied gas, from Russia or Belarus, with the aim of protecting the security interests of member states, taking into account security of supply and diversification.” According to a European Union statement on Monday.
This new European standard, which could be implemented in the coming months, will further complicate the war for Russia, but undoubtedly having cheap gas as an ally will be key to trying to prevent the Soviet state from achieving its goals in the region. war.
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