Natural Gas Surpasses Oil as Europe's Inflation Risk
Natural gas has surpassed oil as the primary concern for European bond traders due to depleted supplies and rising prices, which threaten a resurgence in inflation. European gas prices have reached five-month highs, with winter contracts costing more than twice as much as they did a year ago.
The prices of Brent crude, however, remain 30% below their peak hit on the back of the US-Iran war. Investors are worried that rising gas prices will force central banks to increase interest rates more aggressively than markets currently expect.
According to Emma Moriarty, portfolio manager at CG Asset Management, 'the natural gas price is more relevant to the UK and Europe and never really recovered in any of the ceasefires and continues to leg higher.'
The market participants are concerned that even a breakthrough in the Middle East sending oil prices lower may not be enough to ease the pressure on interest rates if gas supply concerns continue.