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European natural gas storage at just 60% full

  • According to my calculation, average temperature in Frankfurt last month was the second lowest in November over the past ten years.

  • For whatever is worth, the coldest November over the past ten years, 2016, was followed by also the coldest December and January.

  • As heating demand ramps up, the withdrawal from already tight natural gas inventory has been much faster than previous years, about 30% more quickly than last year and at more than double the pace of 2019.

  • As a result, as the above chart shows, the natural gas storage in Europe, as of this Tuesday (December 14), was barely above 60%, the lowest in 10 years.

  • The price of the 1-month forward contract of European natural gas shot up 10% today, hitting a new high at 137.5 EUR/MWh. It has gone up 40% since the start of December, suggesting the market remains unprepared for what has been a well telegraphed train-wreck in slow motion.

  • European politicians, already struggling to cope with surging COVID cases, do not seem to have a plan to deal with this emergency. In the midst of the biggest energy crisis in Europe in decades, Germany's new foreign minister, on the first day of her job, told her French counterpart last week that "nuclear is not green."

  • I have argued in my podcasts that this self-inflicted crisis will give Russia maximum leverage against Europe this winter. NATO Secretary General said yesterday that Russia was increasing, not reducing, its troops on the border.

  • I continue to like my short euro/long dollar position, and view it as a hedge against what is a major risk to my call for higher real rates in the US.

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