The European energy crisis

The European energy crisis

12 August 2022 from Anna Svahn

Last winter gave a taste of the coming winter energy crisis in Europe. In addition to the direct impact on household wallets in the form of higher electricity bills, several food producers have now been forced to increase the price of food even further as the energy crisis has led to production costs rising by more than 50% in some cases, without even taking into account the rising cost of raw materials.

Since the last local peak in the first half of June (2022), the price of WTI has fallen more than 26% but is still trading around USD 90. While there is short-term downside technically for oil, especially in the event the world goes into a recession, the story looks quite different if we look at fundamentals. Now the question is - will the European energy crisis lead to rising energy prices - and thus continued high inflation - into and during a recession while the ECB is forced to raise interest rates? It certainly looks that way.

Oil and gas account for more than 50% of the global energy mix, and about 30% of the global energy mix. This means that rising oil and gas prices have huge implications for both individuals and businesses as prices rise. At the same time, in the midst of the crisis, several countries have shut down nuclear reactors and become increasingly dependent on Russian gas.

Note: Past performance is not an indicator of future performance

At the same time, we have still not passed previous peak levels in either natural gas or oil. In the first decade of the 2000s, prices were driven mainly by China's growth, but then fell sharply during the 2008 financial crisis.

In addition to Russia's invasion of Ukraine and the impact it has had on European oil and gas availability, the fossil fuel sector is grossly under-invested as the world tries to make the transition from oil, gas and coal to greener alternatives. In the long run, few want to invest in a sector that is considered a thing of the past, but it has also meant higher costs and prices for consumers today.

US-President Joe Biden believes that expensive fuel prices are a price we must pay to make the transition to more sustainable alternatives. Most would agree that a transition to sustainable options is necessary for future generations, but even so, the coming winter and several beyond will be felt in the pocketbook.

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27/09/2022 02:39:29


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