Morning Brief – Did I leave the gas on?

Thu 21 Jul 2022

Did I leave the gas on?


European markets have been buoyant this week. Sure, all things are relative and in the grand scheme of things the 2+ cent revival in EURUSD does very little to ameliorate the complete collapse of the currency pair over the last year. However, as you know the markets have been hovering around very critical, historically and technically significant levels. With continued fragility of risk and investor sentiment it is important for some kind of support to emerge to prevent even more devastating price adjustments and write downs.


The Euro itself and many Euro area assets were supported as of Tuesday afternoon by reports that, contrary to much speculation, the gas would be turned back on within the Nord Stream 1 pipeline. With Nord Stream 2’s approval, the multibillion-pound supplementary pipeline project, having been held up by Germany at the start of the display of Russian aggression towards Ukraine, Nord Stream 1 was responsible for the delivery of a hefty chunk of energy resource to the European continent.


Recently a key component of the active pipeline, a turbine heavily responsible for the movement of the natural gas, had to be removed and sent to Canada for routine maintenance. There began the saga of will Canada’s sanction regime allow the part to be returned? If it is returned, will Gazprom (read Putin) allow the natural gas flow to resume, or will they deliberately exacerbate Europe’s already bleak economic outlook? A lot of commentary appeared to have centred on the resolution that it’s not coming back online, and Europe must therefore seek alternative energy provision or face a very uncertain and expensive energy outlook.


That was until Tuesday’s more sanguine headlines reported that Gazprom, according to anonymous sources, will be turning the gas back on. Not only that but thanks to the new turbine Russia could raise the volume of gas flowing to Europe considerably should it wish to. European Commission President Ursula von der Leyen yesterday announced a commitment on behalf of EU nations to limit their consumption of natural gas. Today is the day that the gas should start to flow again and the Euro’s fortune will in no small part depend on whether it does. To raise Euro implied volatility even further, enjoy an ECB decision later today. Cheers to not being an EU public official at this point in time!




Discussion and Analysis by Charles Porter

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