Gas prices in Europe jumped to 197 Euros per MWh after Russia’s Gazprom announced that it is halting another turbine in the North Stream 1 gas pipeline, lowering gas supplies to 20% of the pipeline’s regular capacity. Gazprom also claimed that the first turbine that was sent to Canada for regular annual maintenance has not yet been delivered back. The gas monopoly blamed Western sanctions as the main issue for the inability to restore North Stream 1 to full capacity.
Europe is suffocating from abnormal heat this summer and is therefore in need of more electricity to enable air-conditioning and other cooling systems.
Investors fear further uncertainties of gas deliveries ahead of the winter season. Both heat and cold are aligned regarding the elevated demand for energy that pushes gas prices up. However, this rally may be limited by risks of an upcoming recession in Europe and in the United States. Rising inflation on both sides of the Atlantic (8.6% in the Eurozone and 9.1% in the United States) and rising interest rates may halter economic growth. The European Central Bank (ECB) lifted interest rates to 0.5%, for the first time in 11 years, ending the negative interest rates era.
The Federal Reserve (Fed) will announce its interest rate decision this Wednesday, and is likely to raise rates by 75 basis points to 2.5%. The alternative is a 2.75% hike, which looks insane, but an appropriate answer to the record inflation that has not been seen over the last 41 years. The more hawkish the Fed is in its actions, rhetoric, and forecasts the more pressure will be put on prices, including gas prices.
There are more important data to look for this week. The U.S. Q2 GDP estimate will be released on Thursday. Consensus suggests a rise by 0.4% after a decline of 1.6% in the first three months of 2022. However, there is a serious risk that the American economy may perform a decline for the second quarter in a row, which formally would mean a recession. But if GDP numbers land in a positive zone the U.S. Dollar will receive extra support while gas prices may step back.
Another interesting release this week is the consumer prices index (CPI) in the U.S. and Europe. Europe is suffering as CPI is expected to go up to 8.7% from the previous 8.6%. This may be considered as rising inflation expectations also pushing gas prices up.
So, there are many strong factors that seem to be moving in opposite directions that are hardly predictable. However, this week gas prices are unlikely to breach the resistance at 183 Euros per MWh, while the support is at 154 Euros.
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