European countries depend on Russia for approximately 40% of their gas imports, but Russia could cut gas supply as retaliation for sanctions imposed by Europe over Russia’s invasion of Ukraine. Since the war began at the end of February, Europe has dealt out a series of sanctions against Russia in an attempt to reduce its dependency on Russian energy. However, it's an extremely time-consuming and costly process that has left Europe dealing with an unprecedented energy crisis. Gas prices have skyrocketed by 129% since the beginning of the year. UK and Dutch wholesale prices soared on Monday with Dutch TTF Gas Futures rising over to €159.50 per megawatt-hour, while the UK equivalent traded 15% higher.
The goal is for Europe to cease using Russian energy by 2027, giving it 5 years to develop alternative sources. However, Europe continues to depend on Russia in the meantime, so a threat on the supply of energy has triggered a surge in prices. This, coupled with high inflation figures and interest rate hikes, has the Eurozone on the brink of a recession.
Traders appear to be resilient though as the EUR/USD gathers momentum and reaches the highest level in almost two weeks. Currently trading at 1.0250, the currency pair is set to face strong resistance at 1.0270.
But it is yet to be seen whether the EUR is capable of weathering the incoming storm. Europe is becoming increasingly worried that Russia will completely shut down its gas supply to the continent. These worries were amplified when the Nord Stream pipeline was shut down for maintenance until July 21st. Technically, pipeline operations are meant to resume this Thursday, but many doubt that gas flow will be restored after the maintenance is complete. In addition to this, Russia’s predominantly state-owned energy giant, Gazprom, is threatening to tighten its supply of gas to Europe.
Yesterday, the company claimed that it will not be able to fulfill its contractual obligations due to unforeseeable circumstances. Theoretically, a force majeure claim absolves a party from incurring penalties if they default on their obligations. However, in this case, Germany is not convinced. They have rejected Russia’s force majeure claims on past and current shortcomings.
But while Russia’s claims appear to be made up, the European continent is experiencing some real force majeure consequences of climate change. More than 5 European countries declare a state of emergency or issue warnings as wildfires blaze through Spain, Portugal, France, and other countries. The wildfires have been triggered by an intense heatwave that has been hitting Western Europe for the past couple of days. If the gas supply comes to a halt this week, it would be happening at the worst possible time. The heatwave triggered a huge increase in the demand for natural gas as it is used to produce electricity, which in turn, is used to cool down households, businesses, and others.
Though, not all hope is lost. According to Henning Gloystein, "Although power consumption in the EU will be a bit higher this week amid the heatwave due to high usage rates of aircon units, this will be offset by record supply of solar power generation."
Traders will be keeping an eye out for the developments surrounding the energy crisis and the ECB’s interest rate decision to be released on Thursday 21st July.
Copyright © 2022 – All rights reserved.
NAGA is a trademark of The NAGA Group AG, a German based FinTech company publicly listed on the Frankfurt Stock Exchange | WKN: A161NR | ISIN: DE000A161NR7.
Any trademarks appearing on this website are the property of their respective owners.
The NAGA Group AG is the holding company of various companies, such as NAGA GLOBAL LLC, NAGA MARKETS EUROPE LTD, NAGA Technology GmbH, NAGA Pay GmbH and has a close link with NAGAX Europe OÜ.
RISK WARNING: Derivatives are complex instruments and come with a high risk of losing money rapidly due to leverage. A high percentage of retail investor accounts lose money when trading derivatives with this provider. You should consider whether you understand how derivatives work and whether you can afford to take the high risk of losing your money.
Trading with NAGA Trader by following and/or copying or replicating the trades of other traders involves high levels of risks, even when following and/or copying or replicating the top-performing traders. Such risks include the risk that you may be following/copying the trading decisions of possibly inexperienced/unprofessional traders, or traders whose ultimate purpose or intention, or financial status may differ from yours. Before making an investment decision, you should rely on your own assessment of the person making the trading decisions and the terms of all the legal documentation.
Restricted countries: NAGA Group AG does not provide services for the residents of certain countries, such as Afghanistan, Albania, American Samoa, Australia, Barbados, Belgium, British Virgin Islands, Burkina Faso, Cambodia, Canada (including Quebec), Cayman Islands, Central African Republic, Congo, Democratic People's Republic of Korea, Democratic Republic of the Congo, Gibraltar, Guam, Haiti, Iran, Iraq, Isle of Man, Israel, Jamaica, Jordan, Libyan Arab Jamahiriya, Mali, Monaco, Morocco, Myanmar, Nicaragua, Philippines, Russian Federation, San Marino, Senegal, Serbia, Somalia, South Sudan, Sri Lanka, Syrian Arab Republic, Trinidad and Tobago, Tunisia, Turkey, Uganda, Ukraine, United Kingdom, US Minor Islands, US Virgin Islands, USA, Vanuatu, Yemen, Zimbabwe.