Nord Stream: natural gas takes off and drags oil

Nord Stream: Natural Gas Soars, Dragging Oil

UPGRADE DAY

European gas prices continued to soar on Tuesday, reaching their highest since the all-time high in March, after the announcement the day before of further drastic cuts in deliveries via the Nord Stream gas pipeline announced by the gas giant Russian Gazprom. 

Around 9:15 a.m. GMT (11:15 a.m. in Paris), the Dutch TTF, the benchmark for natural gas in Europe, moved to 192.00 euros per megawatt hour (MWh), thus returning to its levels at the start of the Russian invasion of the Ukraine and dragging oil prices down in its wake.

British gas was trading at 356.99 pence per therm (a unit of quantity of heat), after peaking at more than 357 pence , also a highest since its historic record in March.

Gazprom announced on Monday that it would drastically reduce Russian gas deliveries to Europe via Nord Stream from Wednesday to 33 million m3 daily. , arguing the need for maintenance of a turbine.

This new cut reduces the capacity of the pipeline to around 20%, compared to some 40% currently, as European nations strive to rebuild their reserves as winter approaches.

“Stocks countries are far from reaching the required level of 90% and there are growing fears that Russia is using natural gas as a weapon to obtain concessions from the West” in the context of the invasion of Ukraine, recalls Tamas Varga, analyst at PVM Energy.

This is “further proof” that Europe must “reduce its dependence as soon as possible” on Russia, said Tuesday the Czech Minister of Energy, whose country holds the rotating presidency of the Council of the EU.

The European Commission had proposed last week to reduce European gas demand by 15% from August, in order to overcome the fall in Russian deliveries.

Russia accounted for some 40% of EU gas imports until last year.

On the oil side, a barrel of Brent from the North Sea for delivery in September took 1.45%, at 106.67 dollars.

The barrel of American West Texas Intermediate (WTI) for delivery the same month rose by 1.73%, to 98.37 dollars.

Concerns over Europe's supply of Russian gas have a collateral impact on oil prices, says Ricardo Evangelista, analyst at ActivTrades, “because a potential compression of gas supplied to Europe is likely to increase the demand for oil and other related fuels such as diesel.”

“Constricted physical supply, exacerbated by reduced gas supply from Russia, is driving the gains crude, also says Stephen Innes, from SPI.

The analyst points to the widening of the price gap between Brent and WTI (between 8 and 9 dollars now), “a sign of a bigger tightening in Europe than in the United States”.