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The financial earthquake drags gas and oil to minimums since months before the war


Both fuels have lost almost a fifth of their value since the problems at Silicon Valley Bank emerged.

The stock market upheaval that banks are suffering in recent days is leaving powerful aftershocks in another apparently disconnected market: energy.

The risk that the financial earthquake will reduce GDP growth and, therefore, also the consumption of natural gas and oil, clearly puts downward pressure on the price of both fossil fuels, which are closely linked to an economic cycle that in recent times has been it has become literally impossible to predict.

The price of gas, a raw material in which the virulence of the energy crisis has been especially pronounced, fell this Monday to levels not seen since January of last year.

That is, in more than 14 months.

At the opening of the week, the dominant energy source in European heating and industry has come to lose the barrier of 40 euros per megawatt hour in the Dutch TTF market, which is used as a guide for the entire continent.

Everything, despite the paralysis to which several regasification plants are being subjected - where the fuel that arrives, frozen, by sea is transformed - due to the strike in France.

The forecasts of high temperatures (less consumption) and gusts of wind (more wind generation and, therefore,

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The lower price of natural gas is good news for the block: manufacturing sees one of its main costs alleviated;

Governments can loosen up a bit in their policy of subsidies and aid to go-go;

and households will feel the price rope less.

And it also has reverberations on another energy market with which it is closely linked: electricity, in which the combined cycle plants (gas), mark the final price in many hourly sections.

The fall on Monday coincides with the proposal — now official — from the European Commission to extend its gas savings regulation for one year, which expired next Friday.

Since August – when countries embarked on ambitious savings plans and households and companies tightened their belts to reduce their bills to the minimum possible – the Twenty-seven have reduced their consumption by more than 19%.

The figure is above the 15% that the standard set as a goal.

“Our collective efforts to reduce gas demand have been essential to get us through the winter in complete safety,” said European Energy Commissioner Kadri Simson.

However, she has warned, despite the recent relaxation, the "tension" of prices will continue "in the coming months".

70 dollars per barrel

Oil, for its part, falls this Monday to around 70 dollars per barrel of Brent —the reference in Europe—, a level not seen since the end of 2021, when the energy crisis took its first steps.

Nine of the last 11 sessions have resulted in red numbers in the price of this raw material, still essential for transport and for a multitude of industries, including chemicals and plastics production.

In less than two weeks, those that have elapsed since the problems in Silicon Valley Bank began to be aired -the canary in the mine in this threat of financial crisis-, crude oil has lost almost a fifth of its value.

“Broad market concern weighed heavily on oil this past week, and fundamentals clearly have not been strong enough to support it,” Warren Patterson and Ewa Manthey, commodity analysts at Dutch financial giant ING, explain in a statement. note for clients published this Monday.

“Volatility is likely to persist this week, with financial market doubts at the forefront.”

Lower inflationary pressure

To the cheapening of both fossil fuels is added, also, that of other basic products such as metals or food.

The Bloomberg commodity index, made up of a wide range of goods —from gasoline or diesel to wheat or corn, including copper, aluminum or cotton—, also falls back to levels at the end of 2021.

This notable drop should also translate into lower inflation rates in the coming months.

Hence, many analysts consider that the financial shock could do part of the dirty work for central banks, which have spent months trying to fight without quarter —and with relative success— to stop the rise in prices.

Every cloud has a silver lining.

The reverse of the general landing of raw materials in recent days is gold, a constant every time there is turbulence in the financial markets.

With its quintessential safe haven asset, it is already around 2,000 euros per ounce, its highest level since the beginning of March 2022, in the early stages of the Russian invasion of Ukraine and when the entire European energy puzzle began to fall apart.

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Source: elparis

All business articles on 2023-03-20

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