In the first story above we mentioned that one of the greatest risks to the global economy at present could be another jump higher in global energy prices. This could both crush global growth and trap central banks into greater rate rises, despite the fact that they might not do much.

The positive, however, is that energy prices have fallen steadily in both Europe and the US for months!

The headlines are real enough. There are LNG ships piling up off the coast of Europe's main ports, nearly full gas storage tanks and, most especially, record breaking mild temperatures across the continent.​

The headlines have been backed up by cold hard prices as well. At the time of writing the European gas prices for December now down two thirds from their August peak.

See here:

This is obviously very welcome.

But does it mean that the job is done? Was it all just a panic from hysterical journalists and shallow politicians (and scruffy newsletter scribes) who lost their nerve and caused a self fulfilling prophecy of panic buying and beggar-thy-neighbor policies leading to higher prices?

Long story short, we aren't so sure.

In fact, we are pretty nervous that the worst could be yet to come, at least for Europe.

Why?

Three reasons:

1. The single biggest reason for the drop in prices has been the unseasonably warm weather. That may continue throughout the winter but it seems unlikely. "Winter won't happen" is probably not a lock and it is equally hard to have any confidence in the "it will happen but be incredibly mild" thesis.

2. Second, Putin does have cards to play here. He isn't out of the game and like all vipers may just be biding his time for the optimal moment to strike. Europe is heavily dependent on foreign Middle Eastern and US gas but also Norwegian sources of supply as well. An "accident" with Norwegian pipelines could seriously derail European supply among many other possibilities.

3. Third, we are, in many ways in the seasonal sweet spot ("The SSS", patent pending). The punishing US summer is over and so air conditioning demand is diminishing but the cold of the winter has not yet returned.

There are other dynamics at play as well. Not everything determining energy prices needs to be a dramatic function of less supply. The possibility of greater demand could be the scenario with fewer

On Friday, China announced some mild relaxations of its Covid travel restrictions and, as a direct result, oil soared 3% on the hope that greater Chinese demand could be on the way.

This underlines the double edged sword that confronts a global economy at present. If it doesn't break from higher interest rates then it may struggle to find the oil to grow productively. By very definition, a "soft landing" for the global economy will mean greater oil demand into a historically tight market.

You might have forgotten that, starting in December, Europe will finally begin its long awaited but also long delayed embargo of Russian oil but the time has arrived. Overnight, that action will remove around 1.5 million barrels of oil per day from the global economy (out of an average ~97 million per day).

It could be great if Xi Jinping were to surprise observers by opening China faster than expectations but it would raise a new specter as well: where will the oil come from to make that growth affordable.

One might say the "yin and yang" of the global economy at present.

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