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Last week, I provided you with a summary of the best financial market indicators for measuring geopolitical tensions to assess systemic risks related to events in the Middle East. Commodity markets, currency markets, bond markets, stock markets and shipping indices – all asset classes provide important indicators.
However, indicators derived from commodity markets are currently the most sensitive to geopolitical tensions. Oil prices are directly affected by the closure of the Strait of Hormuz, but it is also important to realize that these events are disrupting gas supplies.
The region has multiple gas facilities supplying large quantities of liquefied natural gas (GNL) to Europe and Asia, and the upward impact on European gas prices has been very strong. Granted, this upward impact is much smaller than when the war in Ukraine broke out, but any potential bullish signal that could get into a “runaway” situation must be monitored very closely.
The leading fundamental and technical factors are as follows:
• About 20% of global LNG trade passes through Hormuz.
• In terms of total production (total global natural gas production), it accounts for approximately 5-7% of global natural gas.
• Only the portion exported in the form of LNG actually faces Hormuz risks.
• The country most dependent on the corridor is Qatar, with nearly 100% of its LNG exports passing through the strait.
• For oil: Hormuz = about 20% of total global market.
• For natural gas: Strait of Hormuz = about 5% of the global market, but has a large impact on European gas prices.
Only a portion of the world’s natural gas is exported in the form of LNG shipped by ship. About 20% of the world’s natural gas is traded internationally in the form of liquefied natural gas, of which about 20% passes through the Strait of Hormuz.
The region is particularly dominant in LNG as Qatar is one of the world’s top three exporters, and European gas is highly dependent on LNG imports from Qatar. Taking into account actual changes in production from year to year, we arrive at a range of 5% to 7% of total global natural gas volumes actually exposed to Hormuz risk.
The region is particularly dominant in LNG as Qatar is one of the world’s top three exporters, and European gas is highly dependent on LNG imports from Qatar.
The infographic below, published by the U.S. Department of Energy and the Central Intelligence Agency (CIA), shows
Oil and gas facilities in conflict zones in the Middle East:
From the perspective of financial market technical analysis, there are still no red warning signals, but be aware: any strong break above the 150 resistance level will send a bullish signal, similar to the bullish effect that occurred when the war in Ukraine broke out. Of all market indicators sensitive to current geopolitical tensions, European gas prices should be monitored very, very highly.
The chart below shows the Japanese weekly candlesticks for European Gas:
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