European Stocks Face Risks as Gas Prices Hit 2022 Highs

European equities are facing heightened risks after natural gas prices climbed above 80 euros per megawatt-hour, marking the highest price point since late 2022. Strategists at Citi report that energy-intensive and cyclical sectors, specifically chemicals, automobiles, banks, and travel and leisure, are the most vulnerable to these price shocks.

Despite the surge, the European economy is currently less sensitive to energy spikes than it was during the 2022 crisis. This increased resilience is due to higher gas storage levels and a supply environment that differs from the period following the loss of Russian gas.

Commodity strategists expect prices to retreat toward the mid-50 euro range by the end of the year, though this projection depends on winter weather patterns and the reopening of the Strait of Hormuz. The long-term outlook for European equities remains constructive through mid-2027, supported by solid earnings-per-share growth.