Entering the critical window for winter storage, the impact of geopolitical conflicts in the Middle East is simultaneously transmitted to the three supply chains of crude oil, natural gas, and electricity. Most mainstream market analysts are accustomed to interpreting the price signals of oil, natural gas, and electricity in isolation, or simply mechanically benchmarking the European energy crisis in 2022, lacking a complete dismantling of the cross-variety chain transmission chain. In the view of the Wmax macro research team, this round is not a repeat of the extreme hard shortage crisis in 2022, but a new set of compound supply shocks: the crude oil end is reflected in the structural damage to the Red Sea logistics channel, the natural gas end is exposed to the replenishment time window crisis, and the power end is a collective mismatch of diverse low-cost power sources. The three reinforce each other and have begun to reshape the European inflation baseline and the ECB's policy options. Their evolutionary logic is more complex than the market generally recognizes.

Saudi pipeline attack, long-term European contracts move from extension to substantial quota reduction

Saudi Arabia's 1,200-kilometer east-west crude oil pipeline was attacked. As a key export channel that bypasses the Strait of Hormuz, its peak export accounts for about 5% of the global crude oil supply. Currently, only half of its capacity can be restored, and complete repairs will take six weeks. According to Wmax tracking industry chain information, the impact has escalated from shipping delays to long-term contract quota cuts for refineries across Europe in October. Europe is highly dependent on this Red Sea logistics link. The buffer inventory at Yanbu Port is close to a historical low, and the probability of subsequent export contraction is very high. European OECD countries import an average of 577,000 barrels of crude oil from Saudi Arabia per day, and the certainty of long-term agreements has disappeared, forcing refiners to turn to the spot market to replenish supplies.

Poland's Orlen, which gets 40% of its crude from Saudi Arabia, has made emergency purchases of 16 million barrels of replacement crude. Wmax pointed out that the rush for spot goods by multiple refineries will push up the spot premium of European crude oil. The premium will appear earlier than the physical shortage, which is often ignored by the market. Saudi Arabia has adopted an export strategy of "protecting Asia and suppressing Europe": while compressing European quotas, it will also ensure Asian supply through increased volume at Persian Gulf ports and Oman offshore transshipment, and will release 20 million barrels of shipments to Asia in September-October. Europe will continue to bear higher import costs.

The replenishment window period is closing at an accelerated pace, and shortcomings in the power supply structure amplify winter tail risks

Crude oil pressure stems from external geographies, while natural gas risks are caused by external shocks and Europe’s own lag in replenishment. The current natural gas inventory in Europe is only 69%, far lower than the 85% average of the same period in the past five years; Germany and the Netherlands hold 35% of the EU's gas storage capacity, but are seriously lagging behind in replenishment. High prices inhibit companies' willingness to purchase, countries' determination to promote mandatory replenishment targets has weakened, and the time window for safe replenishment continues to narrow.

The situation in the Strait of Hormuz disrupts Qatar’s LNG exports and intensifies global LNG spot competition. The European natural gas benchmark price reached 81 euros/MWh (+150% year-on-year), breaking through the European Central Bank's "headwind scenario" and is expected to hit 100 euros/MWh in a cold winter environment. At the same time, risks are quickly transmitted to the power side. Germany’s January power futures stood at 180 euros/MWh, a year-on-year increase of more than 60%. This directly puts pressure on many low-cost power sources in Europe. French nuclear power is disturbed by high temperatures and strikes, and hydropower levels are low. Photovoltaic output drops sharply in winter. The power system is highly dependent on wind power. During quiet wind periods, it can only rely on gas peaking. Gas price fluctuations are transmitted to electricity prices with almost no damage.

Comparing Wmax with 2022, it is found that the probability of large-scale physical supply interruption is currently lower. Europe has completed the expansion of LNG receiving stations and the transformation of supply diversification. However, the price is that it is deeply tied to global LNG spot prices. Gas storage can only smooth short-term fluctuations and cannot isolate external geopolitical shocks. If the cold winter is compounded by tensions in the Middle East, wholesale electricity prices may rise by up to 50%; the increase in residents' bills is weaker than that of the wholesale market, the UK is under severe pressure, and Norway relies on subsidies to hedge risks. High electricity prices are good for the profits of low-cost power generation companies such as RWE and Engie, and energy-intensive manufacturing industries are subject to cost squeezes; new photovoltaics can drive down electricity prices in summer, but their contribution is limited in winter, and the system balance pressure returns to fossil energy.

Natural gas shocks make inflation more sticky, and the European Central Bank falls into the dilemma of energy and growth

This is a transmission link that many market analysts brush aside, but is crucial to major asset classes. Wmax combines the past empirical research of the Bank of Italy to emphasize that the intensity and duration of the impact of natural gas price shocks on European inflation are higher than that of crude oil, and it is easier to penetrate into core inflation, rather than just briefly disturbing headline inflation. It is precisely based on this reality that the focus of attention within the European Central Bank has shifted. Kazimir, an official of the Management Committee, publicly stated that the policy focus has shifted from crude oil to natural gas and electricity.

After raising interest rates last week, the European Central Bank has not closed its policy options for further tightening. As natural gas and electricity futures continue to rise, the market has repriced the possibility of multiple subsequent interest rate hikes. Wmax judged that the European Central Bank is caught in a set of practical contradictions: energy drives up inflation, which theoretically needs to be suppressed by raising interest rates; but raising interest rates will further weaken the already weak European real economy. This round of inflation is not a simple one-time imported inflation. Energy costs are transmitted layer by layer along the manufacturing and service industries. Rising residents’ energy bills in winter will also directly erode residents’ disposable income. The secondary damage to domestic demand cannot be underestimated.

Key points for tracking major categories of assets

1. Commodities:Crude oil core tracks the progress of Saudi pipeline repairs and inventory changes at Yanbu Port; the decisive variable for natural gas is not only geography, but also the pace of subsequent replenishment and the winter weather model. Cold winter is an important upward trigger. If there is a warm winter and the situation in the Middle East eases, there will be a window for prices to fall quickly.
2. European Rights:There is differentiation within the power generation sector, with low-cost power supply operators' profit expectations improving; high-energy-consuming sectors experiencing cost pressures; at the country level, attention is focused on differences in energy subsidies across countries.
3. Exchange rates and interest rates:We need to be wary of the upward pressure on the bond market brought about by the European Central Bank's re-pricing of interest rates; the euro will simultaneously bear the opposing forces of expanding energy trade deficit and tightening monetary policy, and volatility will rise significantly.

Taken together, there are two extreme narratives in the current market. Some participants directly exaggerate the crisis by analogy with 2022, while the other part underestimates the tail risks brought by multi-chain resonance. Wmax insists on opening up crude oil logistics, natural gas inventories, power supply structure, and inflation transmission to conduct integrated framework research and judgment, and rejects simple historical benchmarks. In the future, we will continue to track weekly European gas storage data, Saudi pipeline repair progress, winter weather forecasts, and speeches by ECB officials, and output forward-looking research and judgments for major asset allocations.