It all comes down to a bet on the weather
Russia came to the rescue yesterday as they quelled the surge in European energy prices, prompting speculative bets to cool off after the stratospheric rise in recent weeks.
The surge higher has been an unsettling one and whether justified or not from a fundamental perspective, is a different question as the squeeze – or at least sentiment – was certainly something that perhaps was more psychological/speculative.
I don’t think we’re quite past there yet, especially since there will be questions surrounding if Russia can deliver on its supply pledge and considering that the Nord Stream 2 pipeline will only come into effect after this year’s winter is already over.
For now, it’s all about sentiment and the short-term narrative is that the unworldly moves are likely to be kept at bay until there is a better sense of what to expect going forward. In that lieu, how cold this winter is going to be is key for Europe and the rest of the world.
A frigid winter will likely set off fears across the market once again so keep an eye on the weather forecasts and headlines over the next few weeks.