The European gas market reacted with a rapid growth to negotiations between US and Russian Presidents Joe Biden and Vladimir Putin on December 6. The next day, January futures added 6% in price. On December 8, they increased by another 7%—to October highs of more than $1,200 per thousand cubic meters.
As of 12:30 on December 9, the price of the January ICE futures fell by 2.4% to 99 euros per MWh or $1,152 per thousand cubic meters.
According to Bloomberg, the catalyst for the skyrocketing prices was the potential sanctions against the Russian Federation that the United States promised in the case of an invasion of Russian troops in Ukraine. This was combined with worries about further gas supplies from Russia to Europe and extremely low reserves in EU storage facilities.
"The market is once again gripped by geopolitical events as concerns about the situation on the Ukrainian border increase the likelihood of new sanctions against Russia," Ole Hansen, Head of Commodity Strategy at Saxo Bank, stated.
According to the Engie EnergyScan consultant, prices are also supported by forecasts of colder weather in Western Europe, as well as lower temperatures in Russia.
Christian Signoretto, Gas Portfolio Manager at Eni SpA, notes that the situation with reserves in Europe is critical. He notes that the forecast is disappointing for the whole of 2022. As is well known, the countries of the Union faced the winter with a record low filling of underground gas storage facilities. Since the start of gas withdrawal from them, European states have already reduced their reserves by 12%.
Context. The updated version of the US defense budget for the coming year did not include sanctions against Nord Stream 2, the Russian national debt, and persons from the inner circle of Russian President Vladimir Putin. Meanwhile, lawmakers have included $4 billion to the budget to contain Russia. This became known on the same day, when an online summit was held between Biden and Putin.
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