In this Article
- (Russian) Winter Is Coming
- Energy Prices Will Continue to Rise This Winter
- What This Means for You and Your Money
Yesterday, I looked at the main driver of the energy crisis in Europe right now – uncertain natural gas supplies.
It’s largely down to Russia’s ongoing war in Ukraine and the tit-for-tat sanctions and counteractions between Russia and its European neighbors.
Hopefully, Europe and Russia can find a way to de-escalate the situation. Although, if Putin’s threats to mobilize more troops and the country’s nuclear weapons are to be believed, I’m not holding my breath…
But people living in Europe are already feeling the effects of escalating energy prices. As I told you yesterday, natural gas prices in Europe spiked by as much as 312% since the war started.
Governments in Europe are scrambling to secure alternative energy supplies as the cold winter approaches while trying to agree on a set of measures to limit Russia’s oil and gas income.
And we haven’t been immune on this side of the Atlantic, either. According to the latest U.S. Consumer Price Index (CPI) data, natural gas prices here are 33% higher than a year ago.
So today, I’ll show you how you can make some of that extra spend back as energy prices continue to rise.
But first, a look at what’s coming next in the energy crisis…
(Russian) Winter Is Coming
During the summer, the European Union (EU) announced plans to ban seaborne imports of Russian crude oil from December 5. And it said it will impose a ban on petroleum product imports starting on February 5 next year.
If and when these bans are implemented, they will have a knock-on effect on all energy prices across the globe.
But there’s more…
Recently, the leaders of the EU and other G7 nations decided to try to limit Russia’s oil revenues. They proposed a price cap of between $40 and $60 a barrel on Russian oil. This would also come into effect on December 5.
The Group of 7 – or G7 – comprises Canada, France, Italy, Germany, Japan, the United Kingdom, and the United States.
To say that Russia doesn’t like these proposals would be putting it mildly.
Russian President Vladimir Putin said he will make Europe freeze and turn off the gas valves to any country that imposes price caps.
It remains to be seen whether he makes good on his promise if a price cap is imposed. After all, Russia is no stranger to empty threats.
For example, about six months ago, it demanded that all payments for natural gas be made in its local currency, the ruble, or it would cut supplies. This was to prop up its then-falling currency.
The EU countries refused. This caused a spike in natural gas prices.
In the end, however, Russia backed down… silently. Why? Because it couldn’t afford to cut off the flow of those juicy gas dollars.
It’s very hard to predict how this will play out. If Russia’s war in Ukraine has shown us anything, it is that Putin can be unpredictable.
And the EU and G7 must tread a fine line between forcing Russia to abandon its “special operation” in Ukraine and keeping the lights on in Europe and around the world.
Heads of government from almost every country in the world have gathered in New York this week for the 77th United Nations General Assembly. The energy crisis and the situation in Ukraine are top of the agenda.
Unsurprisingly, Vladimir Putin is not in attendance, although he has sent his foreign minister to the event.
Energy Prices Will Continue to Rise This Winter
The way things currently stand, the rise in natural gas prices is unlikely to be fully resolved in the short term.
And it’s destined to build into a crisis here this winter.
According to the U.S. Energy Information Administration, we generate 38% of our electricity from natural gas.
When the weather gets colder, demand for natural gas-fueled electricity will rise. And in general, colder weather increases demand for natural gas for heating. This is true in both the residential and commercial sectors. That puts upward pressure on prices.
And if the weather becomes unexpectedly cold or harsh, price spikes can intensify.
This means less natural gas would be available for storage. And this, in turn, would lead to higher prices as countries scramble to replenish their depleted natural gas reserves. It’s a vicious circle.
And I’m sure we all remember what happened in February 2021, when extreme weather conditions in Texas closed down U.S. oil refineries and plunged millions of Americans into darkness. Energy prices across the country soared as a result.
What This Means for You and Your Money
The good news is that the EU has already managed to fill 85% of its natural gas storage from alternative sources. As a result, natural gas prices there have pulled back somewhat from their recent peak.
But they still remain more than double where they were in January 2022, before Russia invaded Ukraine.
And the ongoing uncertainty means energy prices will likely stay elevated into 2023.
A good way to position yourself in the short term is with an energy-related exchange-traded fund (ETF).
The United States 12 Month Natural Gas Fund (UNL) tracks natural gas price movements.
Editor, Inside Wall Street with Nomi Prins
P.S. As I said in my essay today and yesterday, the energy crisis on the other side of the Atlantic won’t stay on the other side of the Atlantic…
As the contagion spreads from Europe to America and from the energy markets to the financial system – a portion of your retirement could be at great risk.