The EU natural gas price ceiling agreement was reached, and the position of crude oil futures in the United States and Europe fell to the lowest level since 2015; the liquidity risk of energy prices has further intensified, and WTI crude oil continues to "find the bottom".
180 EUR per MWh! EU gas price cap agreement reached
After two months of negotiations on Monday (December 19), EU countries reached an agreement at the EU energy ministers meeting in Brussels to set a ceiling on natural gas prices at 180 euros per megawatt-hour (MWh), which will Launched on February 15, 2023.
According to the draft text of the EU, the price cap will be triggered if the front-month contract price of the European natural gas benchmark Dutch TTF exceeds 180 euros per megawatt-hour (MWh) for three consecutive days, a level much lower than the European Commission initially announced last month. Proposed €275 per megawatt-hour (MWh).
Netherlands TTF natural gas futures price:
After the announcement, Dutch TTF natural gas futures prices fell further to 106.29, a one-month low since November 17.
It is worth noting that the EU natural gas price ceiling is set to avoid extreme fluctuations in gas prices due to rising demand in cold winters. As temperatures across Europe in December are likely to drop below the average for the same period, the market is worried about another surge in natural gas prices in the absence of Russian natural gas supplies.
Undoubtedly, both the natural gas price ceiling and the G7 price limit on Russian oil are aimed at avoiding large fluctuations in energy prices this year, but they are still questioned by the market. Russian Energy Minister Shulginov said after the natural gas price cap was reached that Russia would make the same decision as the oil price cap in response to the EU's natural gas price cap.
Liquidity risks are intensified, and we should be alert to the possibility of large fluctuations in energy prices
Obviously, regardless of the price limit of Russian oil or the price limit of natural gas, it is essentially the use of external forces to forcibly intervene in prices. Since the current natural gas price and the average price of Russian Ural blend oil are below the price limit level, the potential risks are not obvious. The market is worried that these measures will intensify the market's "chasing up and down" behavior.
In fact, Intercontinental Exchange (ICE) said last week that it could move its natural gas market outside the bloc if the EU pursued the policy, adding that the plan did not give enough time to avoid disrupting the market Stable way to enforce caps.
The proposals could lead to tens of billions of dollars in extra cash, known as margin, for European gas traders, according to analysis.
Intercontinental Exchange (ICE) has raised the margin of European natural gas futures to 45% as early as October 9. As the Intercontinental Exchange (ICE) further increases the margin, it is expected to lead to a further decline in market liquidity in the future. And low liquidity will further amplify market volatility.
U.S. and European crude oil futures positions fall to lowest level since 2015
Obviously, the same situation also occurs in oil prices. The current G7 price limit for Russian oil is set at $60, which is higher than the average price of Russian Ural blended oil at $57.49/barrel from November 15th to December 14th. But Russia is hammering out the final details of its response to Western oil price caps.
In view of the strong financial nature of WTI crude oil, the Fed's continuous interest rate hikes and shrinking balance sheets are undoubtedly drawing liquidity from the market, which has led to a decline in speculative demand for crude oil futures. According to the data, the position of crude oil futures in the United States and Europe fell to the lowest level since 2015 last week.
WTI crude oil futures trading volume:
More importantly, compared with the current market concerns about the US and global economic recession, the fundamentals of oil prices have shown resilience. Last Friday (December 16), the US Department of Energy announced that it will start repurchase as a strategic oil inventory ( SPR) crude oil. WTI crude oil stabilized at $74.0 on Monday (December 19) and rebounded to an intraday high of $76.64, again attacking the $76.8 level mentioned by the author.
The author reminds that although it cannot be ruled out that the US monetary policy will gradually shift as inflation slows down, the potential "bottom" of oil prices may have been proven.
However, as the Christmas holiday approaches, liquidity declines and the outlook for inflation remains uncertain, investors still need to be wary of extreme market conditions in oil prices due to increased short-term volatility.
This week, focus on the annual rate of the U.S. November core PCE price index released on Friday (December 23). As the Fed’s most concerned inflation indicator, the performance of this data will undoubtedly have an impact on the Fed’s future policy path. The lower-than-expected core PCE price index is expected to ease the market's current recession fears.
WTI Crude Oil Technical Analysis: Compete at 76.8, the market outlook may rise to the mid-term downward trend line
There are two conditions for crude oil to bottom out:
1. Before the end of January 2023, oil prices will have a bottom consolidation structure
2. WTI crude oil further fell to the range of 60.0-65.0 US dollars
The daily chart shows that WTI crude oil is temporarily blocked by the $76.8 mentioned by the author, highlighting that there is strong resistance at this position, but at the same time, it is supported by 74.0 below, and it is in short-term consolidation. In the short term, if oil prices stabilize at US$74.0, they are expected to rebound further to challenge the medium-term downward trend line resistance (around US$82.0) since mid-June.
However, if WTI crude oil finally breaks through the $70 mark, you need to be wary of the possibility of a further downward test around $65.0.
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