European natural gas prices plunged as traders weighed the possibility of a summit between U.S. President Joe Biden and his Russian counterpart Vladimir Putin.
Benchmark gas futures dropped as much as 6.5%. The White House accepted a French proposal for the talks on the condition that Russia doesn’t invade Ukraine, U.S. officials said Sunday. The Kremlin said there were “no concrete plans” yet for the summit. Moscow has repeatedly denied it plans an invasion of its neighboring country.
The prospect for the meeting offered fresh hope for a peaceful solution to the standoff that’s affecting prices of everything from energy, metals and food to equities and currencies. European policymakers and traders are keeping a particularly close watch on Russian gas flows amid an energy crunch that’s sent prices quadrupling over the past year.
U.S. Says Biden-Putin Summit Agreed in Principle: Ukraine Update
The proposed talks come after a weekend of increased tensions. Biden had warned on Friday that an attack, including a strike on the capital Kyiv, was possible within days. British Prime Minister Boris Johnson said on Sunday that the U.K and U.S. could stop Russian companies from trading in pounds and dollars if Russia went through with an attack.
“Putin-Biden summit headlines helped turn sentiment around,” analysts at UBS Group AG wrote in a note. However, “a durable breakthrough” may be unlikely in the coming days, it said.
Dutch front-month gas futures, a benchmark for Europe, were down 4.4% at 70.54 euros a megawatt-hour as of 10:12 a.m. in Amsterdam. Prices swung between gains and losses last week tracking every headline about Ukraine, before ending with a third straight weekly decline. The U.K. equivalent contract fell 3.7% to 170 pence a therm.
Gas supplies from Russia, Europe’s top provider, have already been curbed in recent months amid what the nation’s exporter Gazprom PJSC has said were lower requests from its long-term buyers. Robust liquefied natural gas deliveries, flows from Norway, and warm and windy weather have helped offset the decline in Russian flows and pushed prices down from December’s records.
“The situation between Ukraine and Russia will be key to the overall direction of the gas market due to associated risk,” said Tom Marzec-Manser, an analyst for European gas and LNG at ICIS. Gas was also lower on Monday because of factors including high wind power, which lowers demand for gas for electricity generation, and recovering supplies from Norway, he said.
Still, the tensions between Moscow and the West are keeping the market on edge. Gas transit through Ukraine is a linchpin in Europe’s energy security, with about a third of Russian supplies typically coming through the country.
The U.S has told allies that any Russian invasion would potentially see it target multiple cities beyond the capital Kyiv, according to three people familiar with the matter. Cities that could also come under attack include Kharkiv in the northeast and Odessa and Kherson in the south, said the people, all Western officials who asked not to be named talking about sensitive matters.
Kharkiv is about three hours away from Sudzha, a key entry point for Russian gas transiting to Europe through Ukraine. Kherson is near the major grain export port of Mykolaiv, and not far from Odessa — another commodities hub.
Source: Bloomberg