What Awaits Oil and Natural Gas Prices?

What Awaits Oil and Natural Gas Prices?

2022-02-01 • Updated

Geopolitical tensions are casting shadows on energy and oil markets with increased concerns about the potential invasion of Ukraine by Russia. In addition, the United States and its Western allies are considering imposing sanctions on Russia. So let's see how a possible escalation of tensions can impact markets. 

1. Natural gas

Energy markets will be the most affected if tensions turn into an actual conflict or in case of economic sanctions on Russia. Ukraine is a major player when it comes to transferring energy. Most of the Russian natural gas exports pass through Ukraine. 

Europe depends on Russia to get about 40% of its natural gas, which comes across pipelines that move through Belarus and Poland down to Germany. Besides, Nord Stream 1 goes directly to Germany and other countries across Ukraine. As part of possible sanctions, Germany said it might halt the new Nord Stream 2 gas pipeline from Russia if the latter invades Ukraine. If sanctions are imposed, markets expect natural gas exports from Russia to Western Europe via Ukraine and Belarus to decline significantly, pushing gas prices above $6.3 reached in late 2021.

2. Crude oil

Of course, oil markets will also be affected by sanctions or disruptions. Russia is the second-largest oil producer in the world. 

Oil prices have already broken $90 a barrel for the first time since October 2014 on the back of political statements and news. That makes $100 a barrel possible soon, especially with the growing threats to the UAE from Yemen's Houthi movement. The negative news means supply disruptions, pushing prices to further highs.

JP Morgan believes that tensions threaten to create a "significant rise in oil prices." They pointed out that oil reaching $150 a barrel will reduce global GDP growth by 0.9% annually in the first half of the year, and inflation will exceed 7.2%. 

3. Safe havens

The geopolitical concerns usually push investors back to US and German bonds, the safest asset. It might not be different this time. 

In currency markets, EUR/CHF reflects geopolitical risk in the Eurozone. As a result, the Swiss Franc is considered one of the most potent safe havens. That's why it's not surprising that the franc has reached its highest level since May 2015, at the beginning of last week.

4. Grain and wheat

Any interruption in the flow of grain from the Black Sea region may affect the prices of these goods. It will also intensify food price inflation after the COVID-19 recession. 

Four major exporters and producers of grain - Ukraine, Russia, Kazakhstan, and Romania - ship their goods from the Black Sea ports. Disorders may happen if any military action or sanctions on Russia appear. 

According to data of the International Grain Council, Ukraine is expected to be the third-largest exporter of corn in the world in the 2021/22 season and the fourth-largest wheat exporter. Russia is the largest exporter of wheat in the world. The geopolitical risks in the Black Sea region will affect wheat, grain, and energy, pushing prices to rise higher.

Similar

Is the Oil Rally Over?
Is the Oil Rally Over?

On Thursday, June 2, the Organization of the Petroleum Exporting Countries Plus (OPEC+) agreed to boost output by 648 000 barrels per day (bpd) in July and August…

Why is Oil's Rally in Danger?
Why is Oil's Rally in Danger?

Yes, oil prices are burning right now, and inflation is getting hotter along with it worldwide. However, the oil's bullish momentum is under threat.

Latest news

What to Trade on July 4-8
What to Trade on July 4-8

Last week was bearish for risky assets such as stocks, oil, gas, and crypto. Will the upcoming week change the situation across the markets? Let’s look at it in detail!

When Will the US Stocks Bear Market Bottom?
When Will the US Stocks Bear Market Bottom?

US stocks have delivered their worst first half of a year in more than 50 years triggered by the Fed's attempt to control inflation and growing concerns about recession.

The Dollar's Strength or Other Currencies' Weakness?
The Dollar's Strength or Other Currencies' Weakness?

The value of the US dollar continues to rise, but is this because of the strength of the dollar itself or just the weakness of the euro, Japanese yen, and British pound? Since the beginning of the year, the US dollar index has been up 8…

Deposit with your local payment systems

Be on top of your game

Data collection notice

FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.

Callback

A manager will call you shortly.

Change number

Your request is accepted.

A manager will call you shortly.

Next callback request for this phone number
will be available in

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later

Don’t waste your time – keep track of how NFP affects the US dollar and profit!

Beginner Forex book

Beginner Forex book will guide you through the world of trading.

Beginner Forex book

The most important things to start trading
Enter your e-mail, and we will send you a free Beginner Forex book

Thank you!

We've emailed a special link to your e-mail.
Click the link to confirm your address and get Beginner Forex book for free.

You are using an older version of your browser.

Update it to the latest version or try another one for a safer, more comfortable and productive trading experience.

Safari Chrome Firefox Opera