Gas and oil: prices down, but the alert remains high
The heatwave is putting further pressure on gas supplies, whilst the outstanding issues in the US-Iran agreement are keeping tensions high over crude oil
We are a long way from the peaks of 2022, when the Russian invasion of Ukraine sent gas prices soaring. At that time, in fact, the price on the Amsterdam market – Europe’s main trading hub for this commodity – rose above 339 euros per megawatt-hour.
The war in Iran has put renewed pressure on energy costs and, above all, on the price of crude oil, which just a couple of months ago had risen back above $100 a barrel – as it had then – due to the closure of the Strait of Hormuz, through which oil tankers pass. The preliminary agreements between Washington and Tehran, however, have sent oil prices tumbling. Oil has fallen to a four-month low (US WTI at $67 and London Brent at $70).
Gas prices, on the other hand, rose above 60 euros last March and are now hovering around 40 euros. This is double the average of 20 euros seen before the Covid-19 pandemic and the subsequent international tensions that disrupted supplies. The main factor driving up gas prices is increased consumption due to the heatwave that has gripped the globe, whilst the issues surrounding oil cannot be considered fully resolved.
Risks associated with catalytic gas
Much of the global turmoil is being felt in gas prices, including the extreme heatwave that is forcing us to use more electricity in an attempt to mitigate the numerous negative effects on daily life.
Norbert Rücker, Head of Economics and Next Generation Research at Julius Baer, explains that the natural gas market is subject to risks that are difficult to control, ranging from geopolitics to weather conditions. “With the rapid reopening of the Strait of Hormuz,” says Rücker, “the focus is shifting from geopolitics to summer weather conditions, against a backdrop where climate change is undeniably altering risk profiles. The war with Iran and the temporary halt to exports from Qatar have led to a supply shortfall, offset by a combination of increased exports from other regions, fuel substitution – particularly in power stations – and the drawing down of stockpiles, although to a much lesser extent than with oil.”
