Euro hits 20-year low, gas prices jump after Russian gas pipeline shuts
The euro fell to its lowest level in 20 years on Monday after Russia’s decision to shut down a major gas pipeline to Europe intensified an energy crisis that has dealt a severe blow to the region’s economy.
The common currency fell 0.7% to $0.988, its lowest level since 2002 – later paring its declines to trade down 0.2%. European stocks also fell, with the regional Stoxx 600 index closing down 0.6%, Germany’s Dax 2.2% and France’s Cac 40 1.2%. London’s FTSE 100 ended the day up 0.1%.
In energy markets, Dutch TTF gas futures, the European benchmark contract, jumped more than a third to €284 per megawatt hour, rising to historic highs that topped €340 it a little less than two weeks ago. Later in the day, the contract rose 17% to €246.
The price hike comes as European capitals struggle to contain growing concerns over Russia’s ‘weaponisation’ of gas supplies to the continent after Moscow announced on Friday it would halt the flow of gas through the Northern Gas Pipeline Stream 1.
Dmitry Peskov, spokesman for Russian President Vladimir Putin, said on Monday gas supplies from Russia to Europe would not fully resume until the “collective west” lifts sanctions on Moscow.
“The problems with pumping gas arose because of the sanctions that Western countries introduced against our country and several companies,” Peskov said, according to Interfax. “There is no other reason that could have caused this pumping problem.”
Gazprom, Russia’s state gas monopoly, said on Friday it would cut off gas supplies through Nord Stream 1 due to a technical failure, which it blamed on difficulties repairing German-made turbines in the Canada.
“This has long been a scenario feared by the markets and priced in with some probability, but it appears to have come true now,” analysts at RBC Capital Markets in London said.
Sweden and Finland decided this weekend to provide public funding to utility companies struggling with sharply increased collateral requirements on exchanges, warning that without intervention, energy markets could crash and potentially threaten the broader financial system.
Citi analysts said on Monday that their previous “bullish case” for the gas market had quickly become their “baseline scenario” and warned that prices were likely to average above €220 p/MwH in the fourth quarter of this year. year. They added that a cold winter and further Russian supply cuts could “push prices up to €420 per MwH”. That would equate to over $700 a barrel of oil equivalent.
Britain’s energy sector has warned that power producers may also need government support. Liz Truss won the race to become leader of the Conservative Party on Monday and will become British Prime Minister on Tuesday.
Teresa Ribera, Spain’s energy and environment chief, said Putin was “pushing the resilience of European citizens to the limit and undermining trust in EU institutions”.
Ribera, Minister of Ecological Transition, said in an interview with Expansión newspaper that “Putin has boosted the energy market”. “It is broken and immediate intervention is required. It no longer functions according to normal rules and the European Union must act urgently to put an end to the blackmail of the Russian leader.
EU energy ministers will gather for an emergency meeting on Friday to discuss measures to bring soaring natural gas prices under control.
Analysts said the latest twist in the energy crisis would raise the stakes for European Central Bank policymakers, who are also due to meet this week. Several major investment banks, including JPMorgan, Bank of America and Goldman Sachs, said last week they expected the central bank to hike rates by 0.75 percentage points, the biggest increase since 1999, as it struggled against record inflation. While the rise in gasoline prices may have aggravated the inflationary situation, it has also darkened the outlook for economic growth.
“The ECB’s task is greatly complicated by the uncertainty over Russian gas supplies,” said Brian Martin, head of G3 economics research at ANZ. “Moscow’s decision not to restart gas flows via the Nord Stream pipeline raises downside growth risks while raising inflation prospects.”
Eurozone and UK government bonds came under pressure on Monday, with the benchmark 10-year German Bund yield adding 0.04 percentage points to 1.56% and the equivalent Italian yield rising 0. .1 percentage point to 3.94%. The yield on the 10-year gilt jumped 0.08 percentage point to 3% for the first time since 2014, reflecting a sharp decline in the price of the UK debt instrument. It then traded 0.02 percentage points on the day.
U.S. markets were closed Monday for the Labor Day holiday, which could reduce overall trading volumes and increase liquidity.
Additional reporting by Barney Jopson and Max Seddon