Investment Idea

An expensive winter ahead?

21/09/2021 | 2 min read

The soaring fuel prices of recent weeks have not gone unnoticed by anyone. In the last month alone, the price of natural gas has risen by more than 35%. Much of the price increase is likely due to concerns that winter storages are too low. Should temperatures in the northern hemisphere turn unexpectedly cold during the winter months, we could be in for a costly winter.

Rising gas prices

According to the U.S. Energy Information Administration, the supply of natural gas in the United States is 7.6% below the five-year average.  However, the problem is most noticeable in Europe, where the supply of natural gas (a usually stable commodity) is at a record low. Current figures suggest that the storage of natural gas in Europe could be as much as 16% below the five-year average, and that storage is at a record low for the month of September. Investors in natural gas should keep an eye on the natural gas market over the next few months, as we get more clarity on what kind of winter we are facing. 

"If it's a cold winter, gas won't just be tight. It will be very tight," said Daniel Yergin, vice president at HIS Markit. At the time of writing, the price of natural gas is up 106% YTD, noting the highest price in seven years. The market remains concerned about a repeat of last year's cold winter, when natural gas storages were drawn down in Europe. Since then, storages have not been rebuilt either.


However, there are no indications at present that we could face a similarly cold winter this year. The price could fall to more "normal" levels, should the winter months be mild. Another piece of news that may suggest less volatile winter months is the completion of the Nord Stream 2 gas pipeline. Gazprom announced last week that the pipeline, which has created friction between the US and the EU, is ready. The pipeline, which stretches from Russia through the Baltic Sea to northern Germany, could double exports of Russian gas to Europe. This has the potential to alleviate some of Europe's current supply problems.

Natural gas products

Through Vontobel's natural gas products, investors can gain both long and short exposure to the natural gas market. Futures prices are subject to a number of political, industry and sector specific as well as economic factors. Investors should consider these risks when making their investment decisions. Developments may differ from what investors expected, which could result in capital losses.

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