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EU gas extends rally as crunch risks extending into next winter

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European gas prices extended a rally on Tuesday, with tensions between Russia and Ukraine threatening to extend this year’s crunch into next winter, according to Bloomberg. 

Futures jumped as much as 5.9% after closing at a record level on Monday. Traders are pricing in fear as Russia is building troops at the border with Ukraine, a move that could further delay the start of the controversial Nord Stream 2 pipeline.

A potential invasion would also come at the height of the European winter. Europe was already facing an energy crunch even before geopolitical tensions flared up.

As economies reopen, demand is roaring back and supply just can’t keep up with Europe’s large network of renewable sources unable to plug the gap most of the year due to low wind speeds. 

Poland’s state-controlled gas company PGNiG SA is seeking 2.7 billion zloty ($657 million) in short-term funding to “maintain flexibility” of operations amid persistently high gas prices on European exchanges, it said on Monday.

“Spot gas and power prices have quadrupled reflecting market fears of gas shortages over the winter to come,” Antonella Bianchessi, an analyst at Citigroup Inc., said in a report. “Gas fired generation output is on the rise and demand-supply balance increasingly exposed to weather and resources availability.”

Europe Plans End-Date to Long-Term Gas Deals Favored by Russia.

The return to high-level prices threatens utilities and trading companies, many of which had to seek out more loans or were forced to curb positions back in October.