Energy crunch for households far from over as wholesale gas surges again, by 12%

Price increases are significant because warnings about the looming sharp rise in cases of the Omicron variant would have been expected to push wholesale prices lower

The latest increases came as new German foreign minister Annalena Baerbock said Russia would face 'massive consequences' if it invades Ukraine.

Gas prices in Europe raced higher again on Tuesday and are now close to their early October record, as the energy crunch facing households in Ireland and the rest of Europe appears far from over. 

Hikes in wholesale gas prices have already led to sharply higher bills for households at the start of this winter and this week's price increases are particularly significant because the warnings about the looming sharp increase in cases of the Omicron variant would have been expected to push wholesale prices lower. 

The latest increases came as new German foreign minister Annalena Baerbock said Russia would face "massive consequences" if it invades Ukraine. Her phone call was the first publicly announced contact between Berlin and Moscow since chancellor Olaf Scholz's coalition government took office last week.

Continent's energy shortages

Wholesale gas prices are watched closely because an increasing amount of gas is being used to help plug the continent's energy shortages by generating electricity at gas-powered power plants. 

On late Tuesday afternoon, the most closely watched gas contract, the so-called Dutch TTF futures contract, rose again, by over 12%, to €130.50 kilowatt-hours per hour for January delivery.

The contract hit a lifetime high of around €130 in early October.  

There was potentially better news for consumers as the price of crude oil dropped on world markets amid fears that any flare-up of the Omicron variant will lead to new restrictions in leading economies. Brent crude oil futures dropped 1.3% to $73.41 a barrel. 

Paul Dales, chief UK economist at Capital Economics, said it was already paring its forecasts for GDP growth in Britain for the coming weeks based on the effects that Omicron was already having. 

The big risk remained whether Omicron cases would lead to a new lockdown in Britain in January, Mr Dales wrote in a research note. 

"Reports that the surge in Omicron Covid-19 cases is causing some people to stay away from work, schools, pubs and restaurants increases the downside risks to our December and January GDP forecasts," he said. 

But the big step down would happen if there were another lockdown in the new year." 

Meanwhile, Simon MacAdam, senior global economist at Capital Economics, predicted there would be a sharp relief from the recent price hikes around the world, which "will go into reverse early next year".

"Although energy prices have continued to be a major driver of inflation in recent months, energy inflation should fall sharply next year, which will bring down headline inflation globally," Mr MacAdam wrote in a note. 

Meanwhile, stock market investors focused on the current inflation pressures.   

Chris Beauchamp, chief market analyst at online broker IG, said that "investors continue to expect higher prices to flow through the economy" regardless of what leading central banks do with interest rates. 

The Ftse-100 ended slightly lower, but the Dax index of shares in Frankfurt shed 1%.