Russia will cut off the natural gas supply of Europe and the United States once again! Analysis of international oil price trend

Russia will cut off the supply of Poland and Bulgaria, and the price of natural gas in Europe once soared

On Tuesday (April 26), WTI crude oil rebounded nearly 6% from a low of $97.12 to a intraday high of 102.73, regaining the $100 level again and ending two consecutive days of decline.

The reason is that after macron won the French presidential election, the differences between Russia and the European Union in the field of energy once again triggered market concerns.

Pgnig, Poland's main natural gas supplier, said that Gazprom made a final announcement that Poland must pay for natural gas in rubles on Tuesday, or it will stop all natural gas supplies from Wednesday. Polish Prime Minister mateusz morawiecki confirmed the news and said that Poland would adhere to the original arrangement and make full preparations for Russia to cut off all energy supplies. In fact, Bulgaria has also received similar notices from Russia.

The most direct impact of the incident is undoubtedly the sharp rise in European natural gas prices, which soared 17% on Tuesday (April 26).

Simone tagliapietra, a researcher at Bruegel, a think-tank, said that Russia's suspension of natural gas supplies to Poland and Bulgaria showed a historic turn in Moscow's bilateral energy relations with the EU, which may mean similar actions for other European countries in the coming weeks.

European governments need to mobilize all emergency measures that can be mobilized, including the supply side and the demand side, to ensure supply security.

Is there no unity within the EU? After the French election, Europe and Russia launched an energy duel!

In fact, the escalation of the conflict between Europe and Russia is not unknown, because French President Emmanuel macron defeated his far right opponent marine Le Pen in the presidential election on Monday (April 25),

This means that the future "unity" of the EU and NATO is guaranteed, and the sixth round of sanctions against Russia by EU countries is imperative. Therefore, it is also reasonable for Russia to choose to "act" before EU sanctions.

In addition, the United States once again "arch fire". On Tuesday (April 26), U.S. Defense Secretary Austin said that the possibility of Ukraine joining NATO in the future was not ruled out. As Ukraine's accession to NATO is not acceptable to Russia, investors are also reassessing the possibility of a larger war between Russia and Ukraine.

Although the current situation is heating up again, the EU is not "united" in adopting energy sanctions against Russia due to the different degrees of dependence of EU countries on Russian energy. The European Commission said on April 22 that if the European Union's natural gas buyers pay in euros or dollars, and then convert the payment into rubles, it may be able to meet Russia's natural gas ruble settlement order, while not violating the relevant provisions of EU sanctions against Russia.

The statement of the European Commission is regarded by the market as a softening of attitude on energy issues, because more evidence shows that the EU's energy sanctions against Russia will further aggravate the risks of energy shortages, soaring prices, economic recession and so on in many European countries.

Medvedev, vice president of the Security Council of the Russian Federation, said on social media on April 23: "without Russia's natural gas supply, Europe will not survive for half a year, but seriously, they may not survive for a week."

 

 

As the "locomotive" of the European Union, Germany's attitude is particularly critical. Although Germany has changed its attitude towards energy sanctions against Russia, Russian oil still accounts for 12% of Germany's oil demand.

According to the estimation of the Federal Bank of Germany, if the energy sanctions against Russia continue to be implemented, Germany's economic growth rate will decline by 2 percentage points in 2022 and face an inflation rate of 8%. The overall goal of the EU is to reduce its dependence on Russian oil and gas by two thirds by the end of 2022 and achieve zero dependence by the end of 2027.

In this case, the author believes that it may be difficult for the EU to launch the sixth round of oil sanctions against Russia in the short term, and Russia's move may be more about buying time.

Perhaps more worrisome is that the short-term concern about crude oil supply is stimulating the current increasingly intense high inflation, which makes the market continue to increase expectations of the Federal Reserve and other major central banks to tighten policies faster, and market assets continue to be sold off.

David folkerts Landau, chief economist and research director of Deutsche Bank, and others warned that the Federal Reserve may need to implement the most radical monetary tightening since the 1980s to reduce the inflation rate from a 40 year high, which will lead to a serious recession in the United States next year, and it is expected that the unemployment rate will eventually rise by "a few percentage points". "Our conservative view is that the target interest rate of federal funds should go deep into the range of 5% - 6% to curb inflation. This is partly because the reduction of the table can also promote the tightening of monetary policy. Our economic research team believes that its effect is equivalent to two additional interest rate increases of 25 basis points".

In conclusion, we believe that the oil price will be supported by the energy problems of Europe and Russia in the short term, but whether the oil price can further rise sharply remains a variable. If the EU is making slower progress than expected in getting rid of Russia's energy dependence, the oil price may return to the decline after the end of the stage rebound.

WTI crude oil has strong resistance in the 103.0-105 region, which is in the process of large-scale consolidation on the whole, so the future market should not be overly optimistic. In terms of the medium-term trend, the oil price is still in the medium-term downward trend since the high of $130 on March 8, so we should be alert to the possibility that the oil price will turn downward again in the future.