European gas prices rise after Russia threatens to curtail supplies

European gas prices were higher in volatile trading on Wednesday as Russia’s warning it could restrict supplies to western Europe as early as next week unsettled energy markets ahead of the winter.

TTF, the regional gas benchmark, was trading up 2 per cent at €127 a megawatt hour in a choppy session in London, having risen as much as 6 per cent earlier in the day. Prices surged in the previous session after Russian energy group Gazprom accused Ukraine of taking gas meant for Moldova. Russia threatened to limit flows through the one remaining pipeline to western Europe as a result.

The wholesale European gas price has fallen sharply from an all-time high of around €310 a megawatt hour in August thanks largely to crimped industrial demand, higher than expected supply and lower domestic consumption. Gazprom’s move will nevertheless heighten worries over Europe’s energy supplies for the colder months and storage into next year.

Oil prices fell on Wednesday, with Brent crude, the international benchmark, down 2.5 per cent at $85.91. West Texas Intermediate, the US marker, lost 2.6 per cent at $78.87.

In equity markets, Europe’s Stoxx 600 was up 0.2 per cent and London’s FTSE gained 0.3 per cent, erasing earlier gains. Contracts tracking Wall Street’s S&P 500 and the tech-heavy Nasdaq 100 rose 0.1 per cent and 0.2 per cent respectively.

The US holiday for Thanksgiving, as well as football’s World Cup in Qatar, have reduced “liquidity and energy” from markets, said Kit Juckes at Société Générale.

Wednesday’s publication of the minutes from the Federal Reserve’s November meeting will be pored over by investors for hints of which way US monetary policy might be headed. Markets are pricing in a 77 per cent probability of a 0.5 percentage point interest rate rise in December, potentially ending four 0.75 percentage point increases in a row.

November’s cooler than expected price rises were enough to convince some investors that inflation has peaked, but investors’ optimism has been tempered by a series of statements from Fed officials that suggest the central bank could keep interest rates high for longer than markets anticipate.

The dollar has roared ahead this year but is down 4 per cent against a basket of six of its peers in November as investors bet that US interest rates are close to peaking. The currency fell a further 0.2 per cent on Wednesday against a basket of peers.

In government bond markets the two-year Treasury yield, which is particularly sensitive to interest rate expectations, rose 0.02 percentage points to 4.54 per cent. The benchmark 10-year Treasury yield added 0.02 percentage points to 3.77 per cent. Yields rise as prices fall.

In Asia, Hong Kong’s Hang Seng index advanced 0.6 per cent, while China’s CSI 300 added 0.1 per cent. Elsewhere, Japan’s Topix rose 1.1 per cent and South Korea’s Kospi gained 0.7 per cent.

The moves come as Covid-19 cases in China soar to record highs, leaving large parts of the country back in lockdown.

Willem Sels, global chief investment officer at HSBC’s private bank, said he was bearish on equities in general but recently “dipped into” Chinese retail, hospitality and airline stocks on the expectation of further support for the country’s battered real estate sector and a gradual relaxing of strict zero-Covid policies in the second quarter of 2023. 

If implemented, the measures would lower the chances of a full-blown property crisis and stimulate economic growth, Sels added. “Couple that with very attractive valuations, and other investors being underweight, and [China] is a good risk-reward,” he said.