- Natural gas is the most important area to watch in energy markets, a top RBC strategist told CNBC.
- Moscow’s cuts in gas flows to Europe have sent prices soaring as the region’s energy crisis worsens.
- Helima Croft suggested Russia is seeking “a mutually-assured-destruction strategy with Europe.”
Investors should keep a close eye on natural gas as prices break records and Moscow sticks to its strategy of “mutually assured destruction” with Europe, a top Royal Bank of Canada strategist said on Monday.
“I think nat gas is the most important story to be watching right now in this market,” Helima Croft, RBC’s head of global commodity strategy, told CNBC. “I mean, look what is happening, where we just keep breaking previous highs.”
On Tuesday, Dutch TTF natural-gas futures were up by almost 13%, at 276 euros, or about $274, per megawatt-hour, after reaching a record of 291 euros the previous day on worries about Gazprom’s pause of Nord Stream 1 gas flows to Germany.
European natural-gas prices have soared as the region’s energy crisis has intensified, with Moscow’s cuts in flows driving the gains. Countries are scrambling to get cut usage and build inventory for the winter ahead.
Even before the Nord Stream 1 news, Gazprom had slashed its gas supply to Europe via the pipeline to 20% of capacity.
“We have to fully expect that Russia is going for a mutually-assured-destruction strategy with Europe,” Croft said. “‘You impose these sanctions on us on December 5, you continue to support Ukraine, we are going to make this absolutely awful for you.'”
European officials have accused Moscow of weaponizing its energy exports as payback for Western sanctions imposed after Russia invaded Ukraine. The European Union’s ban on seaborne imports of Russian crude oil — the vast majority of the supply — is set to come into force on December 5.
Countries in the region face what one analyst has called a “scary” energy crisis. Germany’s leading utility has been forced to restart a mothballed coal-fueled power plant to secure electricity supply — a sign of how stretched the European gas supply is.
“Europe is facing an economic nightmare right now,” Croft said on Monday. “And the question is — look at where natural-gas prices are. Look at what’s going to happen in terms of industrial shut-ins and rationing. Is Europe going to go forward with these sanctions? That, to me, is the wild card.”