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Europe Markets: Natural gas prices try to find their footing in Europe after Russian respite

Natural gas prices were bouncing around in Europe again on Friday, but attempted to steady after from a promise by Russian President Vladimir Putin to boost supplies to the continent.

Meanwhile, in the equities market European stocks stuck to the flat line, though energy stocks rose as shortages undermine the economic recovery from the pandemic.

European natural gas futures — based on benchmark November Title Transfer Facility (TTF) futures in the Netherlands — rose as much as 10% earlier in the day, but were last down 4% to 92.50 euros per megawatt hour (MWh) from 96 euros on Thursday. Prices jumped more than 30% earlier this week, then dramatically swung lower after Putin’s offer to supply gas to Europe well above its contractual commitments.

U.K. natural gas futures also climbed around 9% earlier, but swung around to drop 4% to 243 pence a therm. The contract had jumped as much as 38% earlier in the week before dropping sharply on Putin’s comments.

“Natural gas prices in American and Germany have soared by 126% and 459% so far this year (see Exhibit 2) while the Dutch gas price was up 748% as of yesterday’s peak before Putin triggered a 37% decline,” said Christopher Wood, global head of equity strategy at Jefferies, in his weekly GREED & fear note to investors.

Jefferies/Bloomberg

“Russia will clearly want to see progress on the new Nord Stream 2 pipeline if it is to supply gas to Europe significantly beyond its contractual commitments,” he said.

Natural gas futures will probably remain elevated for the next 18 months, even with extra Russian gas, Tom Marzec-Manser, global gas and LNG analyst at ICIS, told MarketWatch in a phone interview.

“We still have a storage deficit…that is lower than it needs to be so we can get more gas now, but it doens’t help us actually immediately backfill the volumes that we should have injected into storage over the last six months or so,” he said.

Russia has been accused by withholding on gas supplies as it awaits approval of the controversial Nord Stream 2 pipeline. Europe and U.K. natural gas prices have been rising for weeks as winter approaches, following a colder spring, outages of some gas fields and rising Asian demand.

The biggest gaining sector in European equities was energy, as U.S.
CL00,
+2.03%

and Brent crude
BRN00,
+1.57%

futures prices rose more than 1% each. Oil rose Thursday after the Energy Department reportedly said it has no plans to release crude from its Strategic Petroleum Reserve.

Shares of BP
BP,
+2.46%

BP,
+2.52%

and Royal Dutch Shell
RDS.A,
+2.05%

RDSA,
+2.12%

gained more than 2% each.

The Stoxx Europe 600 index
SXXP,
-0.10%
,
meanwhile, slipped 0.1% to 458.04, holding to moderate losses as U.S. jobs data came in weaker than expected. The German DAX
DAX,
-0.11%

and French CAC 40
PX1,
-0.27%

were also modestly lower, while the FTSE 100
UKX,
+0.41%

was up 0.3%.

Bond yields were also on the rise, with that of the 10-year German bund
TMBMKDE-10Y,
-0.155%

up 2 basis points to -0.159. The yield on the 10-year Treasury
TMUBMUSD10Y,
1.601%

was up 2 basis points to 1.590%. U.S>

In the wake of rising yields, which can be a negative for fast-growing companies, technology was the worst performing sector in Europe. Shares of chip group STMicroelectronics
STM,
-0.96%

STM,
-2.14%

were down 1%, along with chip equipment maker ASML Holding
ASML,
-0.99%

ASML,
-2.03%
,
off 1%,

The downside in Europe was led by Zur Rose Group
ROSE,
-6.41%
,
which slumped 6% after Berenberg analysts cut the e-pharmacy company to hold, saying its long-term growth outlook was priced into the 75% jump in shares seen this year.

“We leave our estimates unchanged, but we think there is the potential for headwinds from a delay to the mandatory introduction of eRx in Germany, which could affect Zur Rose’s near-term earnings and cash position,” said a team of analysts led by Gerhard Orgonas.

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