DON'T FUMBLE A "CRISIS":

Gas storage levels are high and continue to grind higher with gas prices now back to mid year lows and falling further. Expiry on the October TTF contract is going to be interesting - what happens if storage is at close to its limits as was the case for oil in April 2020? I do not expect this to quite trade at a negative price but a very mild weather forecast and high storage levels can lead to strange things happening.

The steepness in the curve arguably already constitutes "weird things" and we are likely to see more before we are done. Weather for Europe is forecast to be mild for the next few weeks so that is *interesting*.

Looking out beyond the next month or two demand response is really taking off now in Europe as outlined in this Politico piece. Some of my initial despair at Europe's prospects earlier in the year centred around the lack of demand response which in turn appeared to be as much consumer and policy inertia as chip shortages for heat pumps and solar inverters which have only recently eased. No more - we are seeing vertical adoption of consumer technology to structurally reduce gas use and, combined with very strong messaging and incentives from governments it is now showing up in the data. There are a number of dashboards here but what is particularly encouraging is that households are now responding almost as well as industry in reducing demand. If this can continue along with the current weather forecast this winter does not look that bad and gas prices should move towards a stable level albeit materially higher than before the Ukraine invasion, likely around 100 euro for TTF. For markets and confidence though seeing that the "top is in" is very important - so long as businesses and consumers can get some confidence around that as the key driver of inflation in the EU a lot of good can flow from there.

For that reason I am sceptical of people calling for sustained energy inflation going forward. In Europe inflation dynamics are almost single factor at this time, and if that factor is being fixed then the prognostications of Russel Napier do not make much sense to me. Prices are set at the margin and if Europe's power and heating markets are on a path to marginal pricing from a scarcity pricing regime then the price is going down from here - at least 50% lower for gas for example.

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