Brent crude oil prices have broken through $80 a barrel for the first time in almost three years. Oil’s rally comes as soaring European gas and coal prices presage a winter energy crisis. In September 2020 “in Europe it cost €119… to buy enough gas to heat the average home for a year”, says The Economist. “Today that figure is €738.”
A cold European spring and a hot Asian summer, combined with a post-pandemic industrial rebound, have kept demand high. Imports of US liquefied natural gas (LNG) on ships will help ease the pressure a little, but global gas markets depend mainly on pipelines and are only “imperfectly linked”.
Denting the global recovery
“Gas storage tanks in Europe are only 72% full ahead of the winter season, compared with the usual 87% at this time of the year”, Warren Patterson of ING tells Pierre Briançon in Barron’s. The global recovery, which was already “weakened by the Delta coronavirus variant, will take another hit”.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The crisis may yet ebb, says Kieran Clancy of Capital Economics. A mild winter in the northern hemisphere and the long-delayed approval of Russia’s Nord Stream 2 pipeline to Germany could restore balance to the market. That said, even then prices are still likely to remain elevated until at least spring next year.
“Hope is not a policy”, says John Kemp for Reuters. Governments are stepping in. Italy plans to spend €3bn on cushioning the blow to consumers. The trouble is that protecting householders from rising prices will only mean a bigger hit to industrial users, which could “disrupt supply chains and create shortages elsewhere in the economy… There is a limited global supply of gas [and it] must be rationed”. In Britain and elsewhere “residential and commercial customers” could do their bit by “turning down their heating this winter”.
Extra demand for oil
High natural-gas prices are having knock-on effects in other energy markets, says Julian Lee on Bloomberg. In Europe and Asia it is now “cheaper to burn oil than gas to generate electricity”. Oil trader Vitol Group predicts that such “fuel switching” will produce an extra “half a million barrels a day” in global oil demand this winter. The reopening of US borders to EU and British visitors also heralds a recovery in the long-haul aviation market, providing another tailwind for oil. Oil has staged a “remarkable recovery” since US prices went negative in April last year, says Matt Egan for CNN. Goldman Sachs, which has long been bullish on the fuel, now forecasts Brent crude will “hit $90 a barrel by the end of the year”.
Europe’s energy woes are spreading worldwide, says Stephen Stapczynski on Bloomberg. Even an average northern-hemisphere winter is likely to bring further price hikes. Soaring LNG prices will mean higher prices for Chinese-made steel and aluminium. “Economies that can’t afford the fuel – such as Pakistan or Bangladesh –could simply grind to a halt”. Long focused on oil prices, traders are “likely to learn how much the global economy depends on natural gas” this winter.
-
Revealed: The 10 UK locations which could see the biggest house price growth in 2026Scotland leads the way for house price growth in 2026 according to Zoopla, but what regions will do the best in 2026?
-
Could pensions inheritance tax rule change create liquidity crisis for Sippholders?Pension inheritance tax rule changes from April 2027 could create a liquidity crisis for some self-invested personal pensions (Sipps) holding commercial property. We reveal what you can do to mitigate the impact.
-
The rise and fall of Nicolás Maduro, Venezuela's ruthless dictatorNicolás Maduro is known for getting what he wants out of any situation. That might be a challenge now
-
Polar Capital: a cheap, leveraged play on technologyPolar Capital has carved out a niche in fund management and is reaping the benefits
-
Vaccines inject billions into Big Pharma – how to profit from the sectorThe vaccines subsector received a big fillip from Covid, but its potential extends far beyond combating pandemics. Here's what it means for investors
-
'Investors should keep putting their trust in investment trusts'Interview Peter Walls, manager of the Unicorn Mastertrust fund, analyses investment trusts in a conversation with Andrew Van Sickle
-
Monks Investment Trust is worthy of the spotlightMonks Investment Trust, a global growth trust, sits in the shadow of its stablemate, Scottish Mortgage. But its record warrants attention, says Max King
-
New year, same market forecastsForecasts from banks and brokers are as bullish as ever this year, but there is less conviction about the US, says Cris Sholto Heaton
-
'Expect more policy U-turns from Keir Starmer'Opinion Keir Starmer’s government quickly changes its mind as soon as it runs into any opposition. It isn't hard to work out where the next U-turns will come from
-
Why does Donald Trump want Venezuela's oil?The US has seized control of Venezuelan oil. Why and to what end?
