Natural gas prices have bitcoined, spiking up to €300 in Europe this summer, to only crash to €55, that’s August 2020 levels according to the Dutch TTF Natural Gas Futures.
The e-mini natural gas futures have likewise dived, plunging from nearly $10 to now $2.6, a close to 5x crash.
The re-organization of Europe’s energy needs therefore has overall been successful with reliance on Russian energy commodities now close to non-existent.
This quick turn-around may be surprising to some, but Europe is a vast economy and it went all hands on deck with the German chancellor himself, Olaf Scholz, touring a number of African countries for energy.
Germany also managed to secure a deal with Qatar and now claims the economic crisis triggered by the Russian invasion of Ukraine has become manageable according to the German Economy Minister Robert Habeck.
What seemed like a monumental task appears to now largely have become a blip with no one freezing in Europe, unlike the claims of Russian propaganda.
To the contrary, while some suggested winter would have the worst of it, it turned out that winter now sees very normal gas prices.
Oil is still higher than 2020 levels, though at $76 it is considerably below the peak of $125 during June.
The geopolitical Russian shock seems to be a long gone story here too. Even newer developments appear to not be making a dent.
Iran’s state TV said a fire broke out at an oil refinery in an industrial zone near the northwestern city of Tabriz. The cause of the accident is under investigation, according to the semi-official Fars News Agency.
There were also a series of explosions in an Iranian weapons factory in the central city of Isfahan which officials blame on Israel.
Yet the price of oil was down 1.5% anyway despite much speculation that China’s re-opening would increase demand.
Instead the new worry is a potential soft recession with Germany’s GDP falling 0.2% quarter on quarter in Q4 2022.
That has led to some headlines claiming its economy shrank, but quarter on quarter is a very volatile measure. Over last year, it grew 1.1%.
However, growth in the US economy has been on a downtrend in the over last year measure, and stats regarding consumer spending suggest that trend might continue for a bit more.
The Federal Reserve Banks therefore no longer quite have much room to maneuver. The energy prices that spiked inflation are down, the economy has cooled, and any reasonable person should expect that interest rates will soon be above inflation.
Yet just how much was it Fed’s chair Jerome Powell and how much Scholz that brought down gas prices, is a big question. Fed therefore is now in the business of managing expectations, with markets betting they will pause after the next meeting following the one tomorrow.
Another two hikes of 0.25% therefore are on the cards, but it doesn’t quite look like the economy can handle this considering the trend. Markets therefore may start expecting not just cuts, but even fast cuts.
Because we are probably in deflation. The gas prices didn’t just crash, they were crashed. Fed clearly had to overshoot for that, but now has a far trickier task of getting back to balance.
Bitcoin is mined through energy so these lower prices may directly affect it, and has a weak correlation to the dollar which in turn has a relationship with interest rates.
So the focus now being more on not just when pause, but when cuts, may explain some of bitcoin’s price appreciation and perhaps its more positive outlook.