In the last forty days, natural gas prices are up by 30% and oil prices are up 8% since the start of this month. This has a two-dimensional cause, the first being the demand is not as bad as estimated because growth rates globally are stable except in Europe. Second, the current wars focus on attacking oil, gas, power infrastructure, and military capability. This adds to the risk premium whenever the escalation happens.
The first major event that brought it focus was the Nord Stream 2 pipeline sabotage in September 2022. This resulted in countries attacking each other energy and power infrastructure aggressively, especially in the Russia and Ukraine conflict that is still ongoing.
In the last few months, there was some level of reduction in this premium but recent escalation between Israel and Iran along with its proxies has returned this premium to a higher level. In addition to this, the Hurricane season in the USA has started on a strong note. This has caused major supply reductions.
The question is whether these infrastructure attacks become a major security issue. If yes then the premium on energy products might remain for a longer time though there might be reduction periods. However, the level of geopolitical crisis in the current scenario has more upside risk to it before normalisation of any level.
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