Supply concerns to dominate in gas markets

European natural gas prices surged this week on renewed supply concerns, as Russia once again cut gas supplies to Europe and the US Freeport LNG export facility closed for six months. The huge price move emphasises how volatile natural gas prices can be, particularly in the current environment when global supplies are tight. High volatility is likely to persist as news on gas flows develops but we’re forecasting the European natural gas price to remain high, ending the year at €120 per MWh. Meanwhile, the financial market backdrop has become less favourable for commodity prices. Global monetary tightening and concerns about global growth have hit risky assets like equities and non-energy commodities this week. Genuine supply concerns are keeping prices of certain commodities elevated, but there is the potential for large price falls if some of these fears ease or prove unfounded. Next week, we don’t think there is much chance of a cut to China’s Loan Prime Rate, to be announced on Monday and the published agenda for the National People’s Congress Standing Committee doesn’t indicate that any extra financing for fiscal support will be discussed. Without significant stimulus, we think that soft demand from China will weigh on industrial metals prices this year.