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Europe’s gas prices soar 62% as crisis puts fuel supply at risk

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European energy prices soared after Russian forces attacked targets across Ukraine, prompting Western governments to vow further sanctions in response.

Benchmark Dutch gas futures rose as much as 62%, the most since at least 2005, in their fourth-straight daily advance. German power for March jumped as much as 58%. Coal and oil also surged.

Russia began a full-scale invasion of Ukraine after President Vladimir Putin vowed to “demilitarize” the country and replace its leaders. The attacks have triggered the worst security crisis Europe has faced since World War II and threaten to exacerbate the continent’s energy-supply crunch, already the deepest in decades.

The government in Kyiv declared martial law and pleaded for international support including harsher sanctions, with President Volodymyr Zelenskiy calling on citizens to take up arms. NATO said it is deploying additional land and air forces to member countries near Ukraine.

Energy Crisis
The crisis puts fuel supplies in Europe at further risk. The continent depends on Russia for more than a third of its gas supplies, and about a third of those flows are shipped via Ukraine. Low inventories of the fuel last year sent prices to record levels, and volumes from Russia have been curbed since the second half 2021.

“In the extreme risk case, which we would define as one that has a lasting and material negative impact on global growth, the conflict could escalate to a level that pushes Western nations to accept a disruption of Russia’s energy flow,” analysts from UBS Group AG said in a note Thursday.

Russian gas exporter Gazprom PJSC said Thursday its shipments to Europe via Ukraine were normal. Russian gas flows through Ukraine, which have been low in recent months, actually rose on Thursday amid higher prices, data from Slovakian gas transport operator Eustream AS show.

Russia Sends More Gas Via Ukraine on Thursday

Ukraine’s gas transit operator also said it’s operating normally and that there had been no accidents as of 10 a.m. local time. Austrian refiner OMV AG said Thursday that supplies of natural gas from Russia have continued in line with the company’s contracts with Gazprom.

Benchmark Dutch gas futures traded 53% higher at 135.725 euros a megawatt-hour by 4:51 p.m. in Amsterdam. German power for March reached 314.01 euros a megawatt-hour.

European coal for next year gained as much as 23%, while oil surged above $105 a barrel for the first time since 2014.

Sanctions Package
European Union ambassadors unanimously backed a broad Russia sanctions package that had been drafted in the event of a Ukraine invasion, a senior diplomat told Bloomberg News. European leaders will discuss ways to toughen the package when they meet Thursday evening.

Germany earlier this week suspended its certification of the Nord Stream 2 pipeline that would ship gas directly from Russia to Europe. The U.S. on Wednesday added the project to its sanctions on Russia. The pipeline is unlikely to start in the medium term because of the Russian attack, Germany’s Vice Chancellor Robert Habeck said Thursday.

Any sanctions curbing Russia’s access to foreign currency could upend commodity markets from oil and gas, to metals and food. Traders are waiting to see what further penalties will bring — particularly any measures related to oil and gas — and whether Russia will be excluded from the the SWIFT international payment system used by banks.

“If the West were to decide to cut Russia off from SWIFT, payments for Russian gas supplies would become impossible,” said Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies. “That would be a cause for contractual force majeure leading to a halt in supplies, with dramatic consequences for European consumers from physical availability and price perspectives.”

(A previous version of this story corrected the size and scope in the second paragraph.)
–With assistance from Isis Almeida, Jesper Starn, Stephen Stapczynski, Elena Mazneva and Daryna Krasnolutska.

SOURCE: BLOOMBERG

BUSINESS

US stocks suffer biggest daily drop in almost two years

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US stocks posted the biggest daily drop in almost two years as investors assess the impact of higher prices on earnings and prospects for monetary policy tightening on economic growth. The dollar and Treasuries gained amid a pickup in haven bids.

The selloff sent the S&P 500 down 4%, with the plunge in consumer shares surpassing 6%. Target Corp. tumbled more than 20% in its worst rout since 1987, after trimming its profit forecast due to a surge in costs. Shares of retailers from Walmart Inc. to Macy’s Inc. were caught in the downdraft. The Nasdaq 100 fell the most among major benchmarks, dropping more than 5% as growth-related tech stocks sank. Megacaps Apple Inc. and Amazon.com Inc. slid at least 5%.

Treasuries rose across the board, sending the 10- and 30-year Treasury yields down as much as 11 basis points. The dollar rose against all of its Group-of-10 counterparts, except the yen and Swiss franc. Gold caught bids in the move into havens.

The benchmark S&P 500 is emerging from the longest weekly slump since 2011, but any rebounds in risk sentiment are proving fragile amid tightening monetary settings, Russia’s war in Ukraine and China’s Covid lockdowns.

In some of his most hawkish remarks to date, Federal Reserve Chair Jerome Powell said Tuesday that the US central bank will raise interest rates until there is “clear and convincing” evidence that inflation is in retreat. Chicago Fed President Charles Evans said Wednesday he sees a half-point rate increase at next month’s meeting and “probably thereafter.”

In Europe, new-vehicle sales shrank for a 10th month in a row as the industry remains mired in supply-chain crises, while euro-area inflation plateaued at a record high. Meanwhile, UK inflation rose to its highest level since Margaret Thatcher was prime minister 40 years ago, adding to pressure for action from the government and central bank.

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Netflix lays off 150 employees due to slow revenue growth and business needs

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Netflix is reportedly laying off nearly 150 employees in the coming days due to disappointing earnings and slow revenue growth.

According to a Variety report, the Amazon Prime Video rival might also terminate its contract with contractual contributors.

The layoffs are about 2 per cent of Netflix’s US workforce. “As we explained [in reporting Q1] earnings, our slowing revenue growth means we are also having to slow our cost growth as a company. So sadly, we are letting around 150 employees go today, mostly U.S.-based,” a Netflix spokesperson said.

The statement further revealed that the decision was primarily driven by business needs rather than individual performance. Netflix reported $7.87 billion in Q1, which was short of Wall Street’s estimates of $7.93 billion.

The report further reveals that nearly 70 part-time employees in Netflix’s animation studio will have to pack up and leave. A report by The Verge stated that about 26 contractors working on Netflix’s fan-focused Tudum website might see a termination.

“A number of agency contractors have also been impacted by the news announced this morning. We are grateful for their contributions to Netflix,” the company said.

Netflix, in its recent earnings call, revealed that it lost thousands of subscribers, which is a first for the company in over a decade.

The company expects to lose an additional 2 million in the next quarter due to the ongoing war between Russia and Ukraine. Netflix has shut shop in Russia following the country’s invasion of Ukraine.

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Dollar breaks N600/$ ceiling ahead of party’s presidential primaries

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Less than two weeks to the presidential primaries of the political parties ahead of the 2023 elections, the US dollar has broken the N600/$ mark at the parallel market and set the tone for a possible uptick in the coming days.

The black market rate had traded between N570/$ and N590/$ since the beginning of the year while the Central bank of Nigeria (CBN)’s intervention at the Nigerian Autonomous Foreign Exchange (NAFEX) has kept its rate under N420/$.

With the latest slump of the naira, the arbitrage between the parallel and NAFEX, which is regarded as the official window, is now inching close to N200/$. The spread measures the deviation of the controlled official rate from the real rate of exchange, with experts calling for liberalisation of the market to enable naira to find its true value.

The World Bank and the International Monetary Fund (IMF) have also warned of the repercussions of sustaining an artificially high naira while calling on the CBN to embark on market reform.

But the CBN has maintained that Nigeria, with the current high level of importation and underperformance of the industrial sector, cannot afford to float the naira completely as the exchange rate could spill out of control.

At the Lagos street market, yesterday, naira traded between N595/$ and N600/$ band. With the presidential primaries of the two leading political parties scheduled for Abuja next weekend, there is an expectation the demand pressure has not peaked, suggesting that naira is in for a protracted pressure.

At peer-to-peer (P2P) trading platforms, the dollar has been trading above N600 in the past three weeks, which had signaled that the black market rate could break through the psychological ceiling.

With that eventually happening, naira could be on a renewed free fall.

But there is also hope that it is a season to offload warehoused hard currencies for political campaigns to possibly shore up supply.

Experts are not sure where rising demand and supply of foreign exchange would lead the naira to, but the interplay between the movements of the two variables is a key factor in predicting the value of the naira in the tense political season. Godwin Owoh, a professor of applied economics, advised Nigerians to prepare for a steeper fall of the local currency, saying partisan politics and intra-party meetings, which are highly dollarised would bring much pressure to bear.

The CBN has promised to continue to protect the naira but its ability could be constrained by the equally falling reserve. For the first time in eight months, the gross reserves dropped below N39 billion on Monday, when CBN data put the figures at N38.92 billion. Effectively, the country’s reserves have depleted by $160 billion year-to-date.

Bismarck Rewane, an economist, had projected the reserve to collapse to $32 billion in the year as he expected the CBN to spend $8 to $10 billion defending the naira, which is taking much pressure from excessive importation.

The value of Nigeria’s imports increased by 64 per cent last year to N20.84 trillion. Sadly, the value of exports increased at a slower rate – 51 per cent – to N18. 91 trillion in the same period. The falling reserves and rising imports have put the apex bank in dire straits in its efforts to continue to defend the naira.

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