The energy crisis could be "much worse" during April

The crisis in energy markets stemming from the war in the Middle East will worsen "significantly" heading into April compared to March, according to the executive director of the International Energy Agency (IEA), Fatih Birol. The Turkish director, who visited the podcast of Nicolai Tangen, CEO of Norges Bank Investment Management (NBIM), explained that while during the last month shipments from the Middle East were still arriving at ports, by April "there will be nothing".

"It is very likely that we will soon see many countries implementing energy rationing measures," assured Birol, who added that, besides oil and gas, many other vital raw materials for the global economy are affected, such as petrochemicals, fertilizers, helium, or sulfur, which are fundamental for supply chains. According to the IEA's executive director, all these circumstances will fully impact inflation this coming month and will also slow down the economic growth of many countries. On March 11, the energy agency announced the release of 400 million barrels from its members' strategic reserves, in its largest intervention in the oil market to date.

Optimism in the markets

Despite the uncertainty, European stock markets have turned green again this Wednesday. At the close, the main Spanish index, the Ibex-35, rebounded to 17,580.40 points after closing Tuesday's session at 17,049.6, an increase of +3.11%. For its part, the Euro Stoxx 50 has experienced similar growth (+3.05%), reaching 5,739.60 points. Germany's most important stock index, the DAX, has also risen, adding 23,275.17 points, representing an increase of 2.62%. American markets, at 6:15 PM, are also in the green: the Dow Jones is up 0.93%, while the Nasdaq 100 (+1.57%) and the S&P 500 (+1.13%) are also on the rise.

Regarding crude oil, the price of the Brent barrel – the European benchmark – continues its downward trend. In fact, this morning, for a while, it was below the $100 barrier, falling to $98.52. At 6 PM, however, its three-month price has rebounded to $102.02, a decrease of 1.88% compared to yesterday. The same has happened with West Texas Intermediate (WTI) crude – the United States benchmark – which at the same time is down -1.27%, settling at $100.09. In the early morning, the WTI touched a low of $96.51. Natural gas futures are falling even more sharply: the TTF – Amsterdam's European benchmark market – is down -6.20% and stands at 47.610 euros.

Changes in oil futures

In fact, there was a sharp rise in the price of oil on Tuesday, and it opened with a sharp fall this Wednesday. But this deserves an explanation of how the crude oil market works, based on derivatives. The Brent barrel closed March with the largest monthly increase in history. At the end of the session on the 31st, it reached 118 dollars. Suddenly, at the start of trading this Wednesday in Europe, April 1st, it stood at 99 dollars. The 16% drop between the two prices quadruples the 4% decrease that its quotation alone reflected this Wednesday when it stood at 99 dollars. The more than ten extra percentage points of difference are the result of the change in reference in derivative contracts. On Tuesday, March 31, the Brent barrel contracts for delivery in May, which had served as a reference since the beginning of the war in Iran, expired.

In the oil market, investors take the derivative contract with the nearest expiration as a reference for the price of the Brent barrel. Until yesterday, this circumstance corresponded to the contract for delivery in May. But upon expiration, the contracts for June become the new reference for the Brent barrel. Therefore, in a situation marked by the uncertainty of a war, the sooner the barrel is delivered, the more expensive the priceis, and the further away in time it gets, the lower the price. This explains why on Tuesday night, with delivery in May, the price soared to 118.35 dollars, but if the standard three-month measure was taken, and therefore delivery in June, it stood at 103.97 dollars.