Norwegian Oil Workers Strike, Pushing European Gas Prices To 4-Month Highs

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• Norwegian oil workers join summer of strikes
• European gas prices pushed to 4-month highs.
• Tight supply keeps oil elevated at $113 for a barrel of Brent crude.
• FTSE 100 treads water on the open.
• China services bounce back provides some cheer but worries persist about slowdown.
• Bank of England financial stability report set to reveal fragilities in UK economy.

Norwegian Oil Workers Strike

“Scorching inflation has provoked a summer of strikes across Europe and now Norwegian oil workers have joined in, and their action is set to exacerbate the pain of rising prices.

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The action by offshore workers on rigs is leading to even tighter supply in the already squeezed energy market. The strikes have hit Equinor's operations on the Norwegian continental shelf and three fields have been closed. If, as planned, the action escalates by Saturday almost a quarter of Norway's gas output could be shut down, as well as 14% of its oil production.

With the screws turning tighter on supplies, natural gas prices in Europe have jumped to the highest level in four months. TTF Futures climbed again to €165, a price last seen in early March soon after the Russian invasion of Ukraine. The reduced flows will be a setback to ambitions by the European Union to ensure nations fill gas storage capacity to a minimum of 80% by the start of November.

It comes at a highly fragile time geopolitically, given that the EU is facing the threat that Russia will turn off the taps abruptly, potential plunging vital industries into crisis. Germany, so heavily reliant on has imports, is now drafting legislation to enable the government to buy stakes in struggling energy companies that are buckling under the strain of higher wholesale costs.

Worries about tightening supply have kept Brent crude elevated at $113 a barrel, countering the downwards pull over worries about the global economic slowdown. Reports that China is planning a $75 billion infrastructure fund to revive economy has failed to lift demand for iron ore, with factories cutting production. Iron ore prices have slipped again reaching $113.4 a tonne, a level not seen since January.That's keeping commodities giants Anglo American and Glencore on the back foot in early trade.

China Services Bounce

China's services bounce back from severe Covid restrictions has provided some cheer, with the last snapshot showing activity surged to the highest level in a year. The welcome boost to consumer sentiment has helped lift the prospects of consumer goods companies with a focus on the Chinese market, with Diageo rising 0.7% in early trade. But ongoing concerns about a global slowdown appears to be holding back gains for Burberry. The worry is that it may take longer for high-end boutiques which have struggled through the pandemic to be brimming with business once more.

The fragility of the UK economy will again be in the spotlight later this morning as the Bank of England releases its report detailing risks to financial stability. Investors will be keeping a watch on what policy makers assess in terms of banks' ability to deal with potentially increased credit risk and to what extent they could see profits reduced given the deteriorating economic outlook.''

Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown

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Updated on Jul 7, 2022, 3:04 pm

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