This week, the EU Commission is expected to present concrete proposals based on last week’s emergency meeting in Brussels on Friday. The result will most likely be introduced to member states by President Ursula von der Leyen during her annual State of the Union address on Wednesday. Thus, uncertainties over potential intervention and changes will continue to dent the market’s sentiment.
The EU gas storage levels are now up to 84% full, well above target. This has increased confidence around the security of supply as the market prepares to enter the next gas year, three weeks from now.
The flow of Russian coal into the EU appears to have come to an end. One vessel loaded with Russian coal is currently awaiting discharge at Gdansk. The latest shipping data indicates there are no other vessels carrying Russian coal that are destined for ports in the EU. Consequently, the EU must now compete for scarce supplies of coal with high calorific value (CV), from origins other than Russia, at a time when G7 nations are phasing out imports of Russian coal. This will continue to provide support for non-Russian high-CV coal prices. The latest reduction in Russian gas flow to Europe may not necessarily lead to upward revisions to coal burn. This development is likely to be seen as bullish for API2 prices. However, in the event more German coal-fired plants are brought out of retirement to mitigate concern about low gas inventories, coal burn could be higher than currently expected. This is a risk that is likely to provide support to API2 prices.
On Saturday, officials from France, Britain and Germany were doubtful regarding Iran’s intentions to revive the 2015 nuclear deal. Thus, casting uncertainty on the prospect of an Iranian return to the oil market. The Iranian Foreign Ministry pushed back against this characterization calling the statement “unconstructive”. Furthermore, the G7 appears determined to push ahead with a price cap for Russian oil prices, a move that would likely boost the price of crude originating in other countries. A European Union embargo against Russian crude is expected on December 5.
Collectively, these developments prepare for a scenario where prices could continue to rise this week. Ukrainian military successes over the weekend also increase the probability that Moscow will continue to withhold oil and gas supplies to the EU, in an attempt to apply pressure on European governments. Still, this is a market that is constantly oscillating, which could be balanced by low economic growth as fear of recession grows, that in itself is putting pressure on prices this week.
