Financial Trading Blog
The NatGas Situation
Energy futures in Europe have seen wild price swings recently; is there any chance they will settle down into a steadier pattern?
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Explaining the moves
The Nord Stream 1 pipeline is shut down as of writing, reducing about a fifth of the supply of natural gas from Russia to Germany.
Yet the price of some natural gas futures in Germany has fallen by around 50% from highs seen just a week ago. That's when energy prices hit $1,000/MWh, and despite the massive drop, the price is nowhere near normal levels.
What happened? Over the weekend, Germany's Economic Minister Habeck said that Germany was well ahead of target in building up its inventory of natural gas. He joined a chorus of German government authorities saying that the country's energy situation was "secure", if far from an ideal situation.
The sudden price drop had more to do with the unwinding of speculative positions than reduced demand. Germany has been buying any and all natural gas at any price to fill inventories. But with nearly full reserves, then the government will be in a position to push back against speculators.
Where things are going
Key takeaways
Nord Stream 1 is being shut down and Germany’s natural gas prices are falling, but they're still not close to normal. The German government is acknowledging the issue of natural gas pricing but feels secure with enough inventory to not be at risk, striking back against speculators, as the country is stockpiling gas to prepare for a winter without Russia.
Germany is coming under control, but Spain and Portugal are going to see budget shortfalls after securing a deal to cap wholesale prices. Other peripheral countries cannot even resolve immediate emergencies.
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