A Shared Risk Premium for Oil and Gas

Brent closed at $117.70 on October 30, after peaking at $118. It is up roughly 13-14% on the month. TTF broke through €100 per MWh and is heading toward a monthly gain of 42%. Both markets are reacting to the same factor: a multiplying series of claimed incidents in the Gulf and fears of renewed hostilities between the United States and Iran.

Buffers Already Depleted

Europe is not entering this shock with intact margins. Its gas storage is only 75% full and has already swung into a sharp decline. On the oil side, EU governments are releasing 42 million barrels of strategic reserves over three months, half of it diesel. France expects relief of €0.12 to €0.18 per liter at the pump. These measures soften the increase but consume the safety cushion.

Concentrated Gas Flows

Physical flow data reveal an architecture heavily dependent on a handful of entry points. On October 23, Emden EPT1 (Norpipe) recorded 432.0 GWh/d at entry. The Mallnow (Yamal) and VIP Waidhaus points showed no flows, at either entry or exit, on October 23 and 24. On October 24, entry at Emden fell to 127.7 GWh/d and exit at VIP Oberkappel dropped from 134.3 to 32.7 GWh/d. Caution is warranted, however: the Zevenaar point is empty that day, and a partial reading cannot be ruled out.

Electricity Prices Widely Dispersed

On October 23, the day-ahead price reached €227.27/MWh in Switzerland and €157.93 in Portugal, against €124.90 in the Czech Republic, €33.90 in Denmark (DK-1) and €23.07 in Finland. The report does not explain this tenfold gap. It notes that exposure to gas and to safety margins varies sharply from one country to another.

What Tempers the Picture

Asian demand is not aggravating the tension: Japan is expected to retake the lead in LNG imports with 62 million tonnes, against 61 for China. In China, demand is held back by near-full storage and high prices. Moreover, some of the attacks in the Gulf rest on claims that the US command disputes.

A Shrinking Margin

Nothing in these data establishes a physical shortage. They do show, however, a continent paying a high risk premium while already drawing on its reserves. In this context, a further deterioration in the Gulf would have a faster effect on prices than it did in early autumn.

This article was written with the assistance of artificial intelligence and verified by our editorial team.