Energy prices soared as the euro fell below 99 cents for the first time in 20 years, after Russia said gas supplies through its main pipeline to Europe would remain closed.
Gas deliveries were due to resume on Saturday, but Russia rescinded that deadline on Friday and did not give a new one for reopening. The news fueled fears of a recession in Europe, with businesses and households hurt by sky-high energy prices.
Gas prices in Europe soared up to 30% at the market opening.
For its part, the euro sank on Monday below 0.99 dollars, reaching a new low of 20 years, after the interruption of gas supplies by Russia.
In recent months, the euro has become increasingly correlated with natural gas prices, with the former falling when energy source prices rise.
Europe is scrambling to shed Russian supplies and build up reserves ahead of the cold winter months, but investors see the hit to its economy as huge.
Russia on Saturday canceled the deadline to resume gas flows through the Nord Stream pipeline, citing an oil leak from a turbine. This coincided with the announcement by the Group of Seven economy ministers to limit the price of Russian oil.
The euro fell as low as $0.9876 in early European trading, its lowest level since 2002, before recovering and trading down 0.2% at $0.9939.
Other currencies vulnerable to spiraling energy prices also fell. In early trading, the British pound fell as much as half a percentage point to a fresh two-and-a-half-year low of $1.1444.
The dollar index, which measures the greenback’s performance against a basket of currencies, briefly hit 110.27, its highest level since June 2002.
In this very important week for the euro, investors are also preparing for Thursday’s meeting of the European Central Bank (ECB) and markets have priced in almost 80% the possibility of a rise in interest rates of 75 basis points (bp), in an attempt to combat inflation, which stands at more than four times its 2% target.
ECB officials will want the euro, which has lost around 8% of its value in the last three months, to stabilize. That will fuel the desire to try to tame inflation by tightening monetary policy.
“High energy prices, the risk of gas shortages and the fiscal and regulatory response will determine the outlook for GDP and inflation in the euro zone much more than anything the ECB can do with rates,” he said in a statement. note to clients Holger Schmieding, chief economist at Berenberg.
Oil price rises 3%
Crude prices rose as investors eyed possible moves by OPEC+ to cut output and support prices at a meeting later in the day.
Brent crude futures were up 2.99% at $95.80 a barrel. West Texas Intermediate in the United States gained 2.74% to $89.24.
At their meeting on Monday, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, are likely to keep pumping quotas unchanged for October, six alliance sources said. Three of the sources said a small cut of 100,000 barrels per day could also be discussed.
“The group is expected to leave production targets unchanged, but a cut is likely to at least be discussed, which, if carried out, would create more volatility and uncertainty at a time of considerable unrest,” Craig Erlam said. , senior market analyst at OANDA.
Russia, the world’s second-largest oil producer and a key member of OPEC+, is not in favor of a production cut at the moment and the group of producers is likely to decide to keep it stable, The Wall Street Journal reported on Sunday, citing unnamed sources. .
Crude prices have fallen in the past three months from multi-year highs reached in March, pressured by concerns that interest rate hikes and COVID-19 restrictions in parts of China could slow down the global economic growth and reduce oil demand.
On the other hand, talks to revive the 2015 nuclear deal between the West and Iran, which could lead to an increase in supply thanks to the return of Iranian crude to the market, have run into new obstacles.
With information from Reuters.
