European natural gas futures soared Monday after reports the Biden administration was considering curbs on Russian crude imports sent shock waves across commodity markets.
Brent surged to $137/bbl and quickly pared gains to trade near $125/bbl around 0630 ET. The focus is European natgas futures, Dutch gas, which jumped as high as 64% to 335 euros a megawatt-hour -- the equivalent of around $600 a barrel of oil.
Chaotic energy markets came after the US Secretary of State Antony Blinken told NBC this past weekend that the Biden administration is in "very active discussions" with European leaders to restrict Russian oil imports.
Ole Hansen, head of commodity strategy at Saxo Bank A/S, told Bloomberg he's at a "lost for words" for the latest price action of natgas. "Margin calls and very illiquid and uncertain markets driving this move," he said.
Bloomberg notes that EU GDP could be slashed by as much as 1% or 2.2% annually should Russia's natgas flows drop to zero. Even in today's high price environment, the continent is expected to take a 0.6% hit. To ensure energy security, EU leaders have accelerated renewable energy projects and are also talking with other energy exporters, such as the US, Qatar, Norway, Egypt, Algeria, and Azerbaijan, to meet their natgas needs.
Even though spring is less than two weeks away, heating demand is still elevated, and energy inflation is crushing the pocketbooks of households across the continent. Also, one energy provider ceased to provide heating oil to the parliament building of Bosnia and Herzegovina in Sarajevo because of soaring prices, newspaper Faktor reported, which means the facilities are currently without heat.
As the Russian invasion threatens to reduce or cut off Russian natgas supplies—either in the form of sanctions or Moscow's retaliation to sanctions—Wood McKenzie detailed last week that Europe can survive the next winter without Russian gas. However, prices would remain extraordinarily high and would be anything but wealth-destroying for households and businesses.
"From record lows at the start of winter, storage levels have now re-enter[ed] their five-year range, albeit on the lower side, and are on track to be in a more comfortable position by the end of March," Kateryna Filippenko, principal analyst, Europe gas research, at WoodMac, said.
"It is our current assessment that the EU can get through this winter safely," Filippenko. But what about next? Natgas supplies on the continent are at low levels, and natgas injections begin at the end of March and early April to resupply stockpiles.
If Russian natgas flows remain low and the West bans Russian energy imports, the EU better find new suppliers quickly, or energy inflation will continue to wreak havoc.