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European natural gas prices surged to new record highs this week as Goldman Sachs commodity analyst Samantha Dart explained the rally had been driven by declining flows from a critical Russian pipeline, nuclear outages in France, and cold weather across the continent. 

On Tuesday, Dutch front-month futures gained 20% to close at 182 euros per megawatt-hour. On Wednesday, prices were slightly off the all-time high, trading around 178 euros. 

On Wednesday, these parabolic moves to the upside prompted Italian Premier Mario Draghi to tell reporters at a year-end press conference in Rome that urgent policy action is needed to rein in Europe’s energy-price crunch. 

The increase in energy prices requires urgent action, we can’t wait.

“The EU Commission is working but we need to work at national level as well and support for families and businesses for gas price hikes will be there if necessary, as it seems, beyond what has already been decided.

“There are big producers and sellers of energy that are having fantastic profits. They will need to participate to support the economy, they too need to help families,” Draghi said. 

After months of dwindling Russian gas supply into Europe, Goldman’s Dart told clients this week that volatile gas prices are primarily due to the Yamal-Europe pipeline, one of the major three routes that Russia’s Gazprom supplies gas to north-west Europe, dropped to zero “for the past four days.” 

The latest rise in energy costs are rolling onto households and businesses across the continent adds to inflationary pressures. Draghi is eager to introduce support packages for “families and businesses” because if governments can’t resolve the energy crisis, a wave of discontent might follow. 

We explained on Tuesday that Europe’s energy crisis is worsening, and power prices are smashing records. It’s only a matter of time before politicians enact support packages to partially or fully shield consumers from dramatic energy inflation. The reason behind such a move is politicians want to get re-elected. 

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