What is your take on what we are seeing in the global markets?
We are certainly in an energy crunch that is playing through the market. The natural gas market particularly is subject to what they call the technical short squeeze. This has to do with the anticipation that inventories and supply of gas will be low this winter when the risk of a bitter winter could be stronger than it is currently modelled on. This is leading to skyrocketing prices but there is also some intervention on the horizon.
The EU leaders are getting together to discuss the gas prices and there is communication with Russia to supply more gas in the future. So there will be some form of intervention. Nevertheless, the market is taking it negative because gas prices translate into higher inflation and slowing down of the economy. It is something we need to watch carefully, going into the winter season.
Give us a broader perspective. High gas prices hitting Europe is one part of the story. On the other hand, crude prices are going up, there is a shortage of coal across the world and we are seeing power shortages and power cuts in China. Is this an evolving situation which could worsen? Are we on the brink of a global energy crisis?
These are happening by mandated cuts in China. They had instated that this summer and just recently, we came to know that they were doing that but that was leading to shortages in terms of coal or even gas or crude oil coming online. There is enough supply out there. This gives one the feeling that the energy prices may have more upside from here and that will affect output globally in a negative way. That is what the markets are taking into consideration.
The markets are nervous about the combination of limited supply price pressure as well as shortages of inventory. It is a taste of where it could go from here.
So what is the outlook? October is traditionally a volatile month for the US markets. Do you see some of these factors persisting?
It is a traditional month of volatility but I would say that the volatility for the moment is still much below where it was last year. Let us see how it develops because we have other things going on like the debt ceiling in the United States even though that does look to be resolved in a number of weeks for now. It would put pressure on markets in the interim. One can expect a more volatile October.
