Over time, it seems that Europe's energy crisis has come to an end, and the price of natural gas has also seen a significant drop.

Prices once soared above 300 euros (per megawatt-hour), but in the last few days, they have fallen below 100 euros. Europe's natural gas prices have plummeted by over 70%, reaching their lowest levels in nearly half a year. There was even a period when futures prices turned negative.

However, there are two very contradictory facts that deserve our attention.

Firstly, while oil prices have dropped and natural gas prices have also decreased, Europe's inflation continues to rise.

Secondly, although Europe has repeatedly emphasized that there is enough natural gas for the winter, many institutions believe that Europe has not yet escaped the energy crisis.

Why is that?

Understanding the answers to these two questions will help us comprehend the layout of the US dollar.

01. Prices have dropped

Since the Russia-Ukraine conflict, the consequences of Europe's sanctions on Russia have gradually become apparent. Europe has encountered an energy crisis unseen in decades, which has also led to a continuous increase in production costs and prices in Europe.

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In response to the crisis of energy shortages in winter, European countries have aggressively purchased natural gas through various channels, hoping to fill their domestic natural gas reserves.According to media reports, European countries, including Germany and Italy, have increased their domestic reserves to over 95%, and the average level of the European Union has also reached 93%.

Due to the shipping time required from the United States to Europe, it has caused a situation where, upon the arrival of American LNG ships, Europe finds it unable to accept more natural gas. The continuous flow of cruise ships has congested port traffic, and sellers are eager for someone to take this batch of goods, even having to sell at a reduced price.

02, The Real Test

However, many institutions are not optimistic about this and have stated that next year will be the real challenge.

If this winter is cold enough, or if economic development recovers next year, such a situation will change, and Europe will face an energy crisis again.

Many analysts believe that with the reduction of Russian energy supplies, even if the above events do not occur, the European energy crisis will return by next winter at the latest.

The current decline in natural gas prices is merely a short-term supply-demand imbalance, but the demand for natural gas will continue for a long time, so the price of natural gas will not be truly changed.

Perhaps some American sellers share a similar view, which is why there are currently more than 30 LNG ships, carrying natural gas worth $2 billion, slowly moving along the European coastline or waiting for orders. Once it is confirmed that the weather is colder than expected, the price of natural gas will rise significantly, and they can take the opportunity to make more profits.

This situation where merchants are unwilling to sell natural gas immediately but keep it on hand is not the first time it has occurred. It also happened last September when the European natural gas prices began to rise rapidly.

In the past two days, the natural gas prices in Europe have indeed been rising, with the current quotation reaching 116.5 euros, which is a noticeable increase from the previous level below 100 euros.Inflation

In addition to the energy crisis, which is still difficult to resolve for the time being, Europe's inflation is far from being resolved.

The latest data indicates that Europe's Consumer Price Index (CPI) has already exceeded 10%, showing no signs of decline and continuing to rise.

Although the European Central Bank has raised interest rates several times since July, inflation has not eased.

Currently, international crude oil prices have significantly dropped from their highs, and natural gas prices have also fallen by nearly two-thirds compared to their peak at the end of August. However, Europe's inflation has not been alleviated, mainly due to a substantial devaluation of the euro against the US dollar.

This results in Europe having to pay higher costs when importing goods priced in US dollars, and these costs are ultimately passed on to consumer prices, causing them to continue to rise.

Overall, the likelihood of Europe's economy entering a recession is increasing. Only then can the US dollar be considered to have truly succeeded once again in shifting the crisis elsewhere.