The rally in energy commodity prices seems to be continuing, with gas prices being a particular indicator. Both those are quoted in Europe and in the United States, which may still climb up before the winter season.
Gas price the highest in 7 years
The price of natural gas futures traded in the United States appears to be continuing to rise strongly and is at levels last seen 7.5 years ago, approaching $6.5 per MM/Btu (British thermal unit). This means that since the beginning of the year, the price of gas has risen by a staggering 150 percent, with a whopping 74 percent increase for the last quarter alone. The approaching winter season in the north of our globe seems to be fueling the demand for this raw material even more. In turn, gas shortages in Europe are the largest in over a decade, given the current time of year.
Huge demand for gas from Asia
According to international sources, the Russians and Gazprom have no intention of increasing gas shipments to Europe, while China is already importing twice as much as in 2020. In turn, the Americans are becoming the main exporter of LNG, even though they also have problems with stockpiles of the raw material before winter, as stock levels are below the five-year average. Moreover, there is still a drought in about half of the United States, which makes it impossible for hydroelectric plants to produce electricity, as reservoirs and dams are empty and the water flow is unable to turn the turbines. Hence, the shortfall in production could be covered by gas-fired power plants.
Rate hike in New Zealand
Changing the subject to the currency market, New Zealand's central bank decided to hike the main interest rate from 0.25 to 0.5 percent and this was the first hike since 2014. The market expected it, so the NZD/USD exchange rate did not react with a strong increase, while further events showed the opposite turn of events. The release for the decision reads that in terms of the inflation outlook, headline inflation is expected to rise above 4 percent in the near term and then return to 2 percent over the medium term. Inflation growth in the near term is bolstered by higher oil prices, rising transportation costs, and the impact of supply shortages. The bank's board added that further removal of monetary stimulus is expected over time, with future moves dependent on the medium-term outlook for inflation and employment. This last sentence in particular may have perplexed NZD buyers, as no clear path for any further increases has been laid out. Hence, the NZD/USD exchange rate finally seems to have fallen to 0.6920 this morning.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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