Key facts
- Europe's natural gas storage levels are at 69%, below the five-year average of 85%.
- Global oil prices have surpassed $100 a barrel amid Middle East conflict.
- EU petrol prices are up 24% year-on-year, diesel 38%, and jet fuel costs have more than doubled.
- The European gas benchmark price has increased 150% year-on-year to €81 ($93) per megawatt hour.
- Inflation in the euro zone accelerated to 3.3% in August, driven by energy costs.
- The European Central Bank has raised interest rates and signaled potential further hikes.
Europe's low natural gas reserves, coupled with rising global energy prices and borrowing costs, are intensifying economic and political pressure. The conflict in the Middle East has further threatened supply routes, pushing oil futures above $100 a barrel and driving up prices for diesel and jet fuel. European natural gas is at its highest since 2022 as regional utilities compete for cargoes.
Inflation is re-accelerating globally. In the U.S., headline inflation stood at 3.4% in August, with gasoline prices jumping 3.9%. Euro zone annual inflation climbed to 3.3% in August, exceeding the European Central Bank's 2% target, largely due to energy costs. The UK also saw inflation rise to a five-month high of 3.1% in August.
The outlook for global interest rates has shifted, with markets now anticipating rate hikes from major central banks. The European Central Bank has increased its inflation expectations for next year, and traders are pricing in further hikes from the Federal Reserve. The Bank of England indicated that UK inflation could exceed 4% by early 2027.
Despite economic headwinds, growth has remained resilient, supported by the AI boom. However, concerns are growing about market fragility. Investors are watching whether growth can withstand higher energy and borrowing costs, especially as doubt creeps in about the sustainability of AI investments. Consumers are increasingly squeezed by soaring fuel costs, rising household energy bills, and higher mortgage rates, with wage growth failing to keep pace.