European Countries Face Margin Calls From Spiking Natural Gas Prices
September 7, 2022
Bloomberg reported that as a result of the spike in natural gas prices European energy companies are facing margin calls of $1.5 trillion dollars. This can dry up liquidity which in turn leads to even greater volatility.
It seems strange that Russia has cut supplies via the Nord Stream pipeline and Henry Hub natural gas price have not gone higher but European gas price have and it may be these massive margin calls that are impacting trading. Russia has said they will not resume the flow of natural gas to the EU until sanctions are lifted.
Remix News survey says as many as 6 in 10 British manufacturing businesses are at risk of closure due to soaring energy prices.
The following is from Goldman Sachs Group Inc, utility analysts. At their height, energy bills will represent about 15% of Europe’s gross domestic product, the analysts, led by Alberto Gandolfi and Mafalda Pombeiro, wrote in a note dated Sunday. In our view, the market continues to underestimate the depth, the breath, and the structural repercussion of the crisis, they wrote. We believe these will be even deeper than the 1970s oil crisis.
Russia’s Deputy Prime Minister said the OPEC+ oil output cut was merely a reflection of expectations of a weaker global economy. There seems to me currently more economists and traders being concerned about demand going forward. OPEC+’s action appears that they want to defend crude oil in the $90 to $86 dollar zone. Technically the $86 to $84 zone is a huge technical hurdle and if the bears can get the crude oil price below that level, then this market will have more downside.
The energy markets continue to try and figure out if future demand destruction will eventually bring prices down or the ongoing tight supply situation will push prices higher. If the global economy does avoid a recession and demand stays steady prices could move much higher, but if the global economy does go into a recession and demand crashes then prices will move much lower.
According to the Department of Energy , crude oil inventories in the US SPR fell by 7.5 million barrels in the week ending September 2 to 442.5 million barrels, the lowest level since November 1984.