An Energy Price Rise Two-Fer Today

by | Oct 4, 2021 | Wealth Management

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By:  Thomas Steffanci, PhD, Senior Portfolio Manager

A series of margin calls and OPEC’s reiterating its ongoing 400,00 barrels/ per day increase in output lit a further surge in natural gas and oil today. Hedge funds and large traders have been making bets that natural gas prices in the U.S. would rise faster than in Europe. So, they shorted natural gas futures in Europe (via a futures exchange in the Netherlands) and were long U.S. natural gas. The explosion in European demand and tight supplies for natural gas over the past few weeks unleashed huge margin calls, forcing those dealers and hedge funds to come up with more cash forcing a covering of short positions to do so. Margin calls were a record shattering $30B. With OPEC+ sticking to its existing pricing strategy despite calls to increase output beyond that, Brent oil prices surged to $80/bbl., with West Texas Intermediate Crude (WTIC), topping $78 intraday. In a world where central banks tend to focus on core inflation (excluding food and energy) rather than headline inflation (including food and energy), will central banks look past the energy price shocks we are seeing?

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