Russia’s rubles demand poses upside risk to gas prices

Russia’s monopoly exporter of natural gas, Gazprom, suspended gas deliveries to Poland and Bulgaria this week because they refused to pay for Russian gas in rubles. There is some confusion about whether the process by which Russia demands rubles to be paid would breach EU sanctions given that Russia’s central bank, which is a target of EU sanctions, would be involved. This raises the possibility that other European countries will suffer the same fate as Poland and Bulgaria when their next gas payments fall due. We consider this to be a clear upside risk to our near-term European gas price forecasts. Next week, oil prices could also take direction from Europe, with the EU currently working on a sixth round of sanctions, which may involve an outright embargo on Russian oil or at least plans to reduce oil imports from Russia. On the data front, China’s PMI data for April are due out this Saturday. We expect the data to show weaker economic activity than the market expects, which would be negative for most commodity prices, but particularly industrial metals prices.