Will the energy crisis destabilise the economy?
Read the free report and find answers to questions such as:

  • What makes price increases a global problem?
  • Why are energy prices rising and how high can they go?
  • Can we run out of energy?
  • How can traders take advantage of the current situation?


Introduction

Nobody expected that after last year’s steep drop in prices of numerous daily-use products, the situation would take a U-turn so quickly. Moreover, we experienced such anomalies as negative oil prices on the market, which led to gasoline prices on US gas stations dropping below $2 per gallon. However, this is a thing of the past and now reality is much different. Companies all over the world are halting production due to sky-high energy prices and gasoline prices jumped above $3.30 per gallon. What is actually happening on the global energy market? Is there a way out of the current situation?

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Global price increases

It’s been a long time since the whole world had to deal with excessive inflation. Massive stimulus programmes enacted to combat effects of the pandemic are one of the reasons behind the situation. Supply-side issues also played a role. Adding to that the rising commodity prices, we get an inflation shock as a result. What is getting more expensive? In short, almost everything. Natural gas prices in Europe surged 500-600% over the past year! Coal prices around the world increased 100-150% during the same period. Oil or US natural gas did not experience such a massive rally, but even in those cases prices rose by several dozen percent. Where can we find the reason for such rapid price increases?


The story behind energy prices rally

In order to find reasons behind current price increases, we have to travel back as far as 20 years to times when the European Union introduced the CO2 emission trading system. In was initially introduced to fight global warming. EU member states, followed later on by countries from other parts of the world, wanted to limit emissions of greenhouse gases with the hope of slowing down climate change. Power plants, heating plants, as well as industrial companies were granted emission contracts. However, the amount of those contracts is limited. Should a company expect its operations to result in higher CO2 emissions, it will have to purchase additional emissions. The number of available emission contracts is shrinking each year, leading to an increase in price of those contracts and, in turn, in prices of energy as well as goods and services offered by companies.
 
The easiest way of reducing costs would be to shift away from fossil fuels. This is easier said than done, but the process is progressing slowly. Numerous countries decided to switch to natural gas as a means of producing energy. It is a more expensive way, but results in two times lower CO2 emissions and a much smaller amount of other waste. Meanwhile, countries are boosting the share of renewable energy sources at the expense of conventional energy sources, especially coal. All pieces seem to fit together. Higher emission prices cause governments to favour energy sources that are less emissive, like renewables or natural gas. However, a problem arose.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with XTB Limited. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with XTB Limited. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with XTB Limited. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.