European natural gas prices rose to the highest level since late 2022 as heightening tensions in the Middle East boosted concerns about prolonged supply disruptions and winter fuel inventory levels.
Benchmark futures jumped as much as 4.8pc yesterday, extending their advance into a fifth session, with Asian prices also climbing to the highest levels in more than three years. A rally in oil strengthened yesterday’s upward momentum.
Iran said it’s ready to intensify the fighting, which has already disrupted around a fifth of global liquefied natural gas flows. US president Donald Trump said the war would end only after his country’s November midterm elections.
Renewed hostilities in the Middle East and expanding attacks on energy infrastructure by Russia and Ukraine have heightened concerns about supplies. While European gas prices are far from the peaks reached during the 2022 energy crisis, they’ve more than doubled from pre-war levels, adding to headwinds for the region’s economy as winter approaches.
Inflation in the euro area now looks set to remain above the ECB’s 2pc target into the winter.
“The likelihood the conflict in the Middle East is resolved anytime soon is becoming increasingly distant,” said Tom Marzec-Manser, director of Europe gas and LNG at Wood Mackenzie. That means oil and gas prices would remain elevated, which “would ultimately increase the cost-of-living in many parts of the globe,” he said.
Europe has been struggling to rebuild its depleted gas inventories ahead of winter, with storage sites around 67pc full – the lowest for this time of year in records going back to 2009. Tighter global flows would increase Europe’s need to compete for alternative LNG cargoes with Asia and other regions, potentially pushing prices even higher as heating demand begins to rise.
“There is no physical supply security risk,” said Ben McWilliams, affiliate fellow at the Bruegel think-tank in Brussels. “However, European companies and households are bracing for a winter of high natural gas prices. This will gradually feed through into retail price tariffs and household heating bills.”
The situation is even more acute in Germany, Europe’s biggest energy market, where storage sites are only 55pc full. The government held talks with state-owned energy companies about how to boost inventories without outright state intervention.
“I think we’d be better off in Germany if storage facilities were filled to a greater extent in the weeks leading up to winter than the market itself manages to do,” RWE CEO Markus Krebber said in a podcast.
Dutch front-month futures, Europe’s gas benchmark, traded 3.3pc higher at €81.86 a megawatt-hour by 6:22pm in Amsterdam. The UK equivalent futures were up 3.8pc at 205.22 pence a therm, and also touched the highest since December 2022.
The recent rally could set the stage for a potential cascading sell-off if the bullish trend gets exhausted at some time in the near future, according to Kpler’s team covering trend-following CTAs. Still, their models do not suggest any signs of such reversal at the moment.