“It is always darkest before the dawn” Thomas Fuller
Is this our darkest hour in the markets?
Prices surged on close Friday, but if you thought that was the peak, gas prices have increased by a further 39% today, to incomprehensible valuations. What’s even more hard to comprehend is the breakneck speed on which prices are moving, surely breaking every metric record in the market. At half 8, prices were around 60% up, but have since sold off to sit at around half the gains.
Gas prices have more than tripled in a week and still going.
Looking at the extreme, On the 21st of April 2020, day ahead gas prices were 9.3p/therm. Today the forward month hit 800p/therm at 08:23am. That is the ultimate extreme, but it highlights the speed of the journey we have been on over the last two years. Electric is much the same.
If valuations are sustained at these levels, you have to question how some businesses will cope without additional support. The key question therefore is just how long the markets will keep rising. Right now, it feels nothing is off the table for possible valuations, as gas and other commodities look set to become scarcer in the near-term future, particularly in Europe.
It might be hard to see the light at the end of the tunnel, but it is there. The world must source alternative supply solutions short term, move away from the reliance of natural gas medium term, and build a bigger, more efficient energy network long term. Then energy prices will normalise.
Today, Brent crude hit $139/barrel, before pulling back slightly. On Friday it was $108, which is a rapid rise over the weekend. This comes off the back of the US hinting at a complete ban on Russian Energy and a clear misbalance between global supply and demand. The conflict in Ukraine is sadly intensifying with each passing day. A third round of peace talks are being held. But with the saga over ceasefires not being honoured over the weekend, the markets are clearly less optimistic of a peace agreement, with trust between the nations harmed.