European Energy Threat Pushes Commodities Higher

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European Energy Threat Pushes Commodities Higher
European Energy Threat Pushes Commodities Higher

European Energy Threat Pushes Commodities Higher

The escalation of geopolitical tensions tends to push commodity prices higher. Traditionally, it is the precious metals that benefit from their safe haven quality. Gold in particular is the go to commodity for nervous investors seeking a store of value during uncertain times and has added 1.75% so far today to $1,345.

The Ukrainian situation however is presenting a challenge for Oil and Natural Gas consumers, particularly in Europe. The problem is that Europe buys most of its gas from Russia. Not directly, but via a Russian pipeline that routes through the Ukraine. The potential supply threat is driving energy prices upward.

Natural Gas is trading 2.3% higher this morning. Crude Oil is also surging ahead, Brent is up over 1.5% to $110.74 per barrel while West Texas is 1.2% higher to $103.84 per barrel. There is however no supply disruption in evidence yet and it is uncertain at this stage as to whether one will emerge at all.

Additionally, European energy consumers have several things in their favor at the moment. The relatively mild European winter this year has created stockpiles in several European countries. European Natural Gas storage facilities are reported to be close to 50% full at present, typically this runs at closer to 40%.

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Furthermore, European countries have taken the strategic step to increase storage facilities and have been consistently adding to capacity over the last 5 years. Lessons were learned from the winter of 2009. The Ukraine temporarily ceased onward supply of Natural Gas to Europe as it disputed prices and terms. That spike in energy prices quickly brought home the vulnerability of European countries to the actions of the former Soviet state. This prompted the EU to court The Ukraine towards full membership of the European economic bloc, a situation that is in no small part contributing to current tensions.

Regardless of the outcome of the current Ukrainian crises, it has to be noted that the Russian economy is massively dependent on the international sales of it’s Oil and Natural Gas. It is understandable for the energy market to become nervous in the face of threatened supply disruption, but as it stands Russia would gain nothing from reducing supply to Europe. It will take a take a much more significant escalation of current events to bring about any shortage in the European energy supply.

To contact the reporter of this story: James Brennan at james@forexminute.com