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European natural gas trading at equivalent of more than $200 a barrel of oil

The escalating supply crunch in Europe saw natural gas prices surge to record highs on Tuesday, as concerns are building over the possibility of a fuel insecure winter.

Gas in Europe jumped 23% to €117 a megawatt hour. This compares to prices being at €15 just six months ago.

The most recent spike means that natural gas is now trading at the equivalent to over $200 a barrel of oil.

It is the latest sign that the continent's crisis is getting worse, according to analysts, who also suggest there is no immediate fix.

“Given the size of the current supply-demand gap, we don’t expect a permanent solution to be found soon,” said S&P Global Ratings’ credit analyst Elena Anankina. “Some contributing pressures may gradually subside, but we believe others represent structural shifts. These include Europe’s dependence on imports and increasing exposure to global gas markets.”

In the UK, which has been particularly badly hit by soaring costs of natural gas, prices for November jumped 14% to £2.79 per therm.

British wholesale gas as a result rose by 23% to £2.50 per therm.

Surging demand in Europe has come as economies recover from the pandemic during the winter period as European gas stockpiles are lower than usual.

Russia, generally the continent’s main provider, has limited its supplies, while production in Europe is down sharply.

Additionally, demand is rising in Asia, which is in a recovery process, as China faces up to its own energy supply issues.

Analysts will be looking at the output of meteorologists, as they are of the view that a slight dip in temperatures across Europe could lead to a tightening in the continent’s gas market.

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