The European energy crisis
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.
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.
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.
Risks
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