European households are anticipating a significant increase in energy bills as the heating season approaches, primarily driven by a surge in oil and gas prices. This comes after renewed fighting between the U.S. and Iran pushed Brent crude near $95 a barrel and European natural gas prices to a three-year high.
The escalation in hostilities between the U.S. and Iran, particularly U.S. attacks on Iranian infrastructure and Tehran's response in the Strait of Hormuz, has disrupted energy supplies from the Persian Gulf. This situation is particularly critical for Europe, which is heading into winter with low natural gas inventories, currently at 65% full, the lowest seasonal level since 2009. Worldwide restrictions on oil refining capacity are also contributing to fuel supply issues.
The rising energy costs are fueling inflation concerns across Europe, prompting politicians like French Foreign Minister Jean-Noel Barrot to highlight the issue as a key risk. Central banks, including the European Central Bank and the Bank of England, may face pressure to continue raising interest rates to combat inflation. Analysts, such as Thomas Pugh of RSM U.K., emphasize that diesel and gasoline prices are a more critical indicator than crude oil prices, with diesel pricing as if oil were $140 a barrel.
European natural gas futures for October delivery on the Dutch TTF exchange rose by 1.77% to €73.495 per megawatt hour, reaching €75.325 per megawatt hour earlier, the highest since January 2023. In the UK, natural gas futures rose to 180.7 pence per therm, the highest in three years. These price increases are expected to feed into consumer bills, although the timing varies across countries, with some nations like France, Italy, and Spain seeing impacts within months, while Germany and Austria may take nearly a year.
