European Gas Pares Early Gains

European natural gas prices hovered above €82/MWh on Tuesday, their highest level since late 2022, amid intensifying disruptions around the Strait of Hormuz and concerns over still-below-normal gas inventories. The strait remains closed to most commercial traffic amid ongoing military conflict and security threats, while diplomatic efforts to secure its reopening have stalled, raising fears that disruptions to shipments could persist. LNG tanker traffic through the Strait has fallen sharply, tightening global supplies and intensifying competition with Asia and other buyers for available cargoes. Meanwhile, ongoing maintenance at Norwegian gas facilities is also adding another layer of uncertainty to Europe’s winter supply balance. Europe’s gas storage levels stand at around 68% of capacity, nearly 17 percentage points below the seasonal norm, when inventories would usually be close to maximum capacity.

European natural gas prices jumped 5% to €84/MWh on Monday, the highest level since December 2022, as tensions in the Middle East persist. Saudi Arabia has temporarily closed a critical oil pipeline after drone attacks, while an advance by Yemen’s Houthis fueled concerns over further disruptions to global energy supplies. Meanwhile, a meeting scheduled for later today between Iran and Gulf states to discuss a potential agreement to reopen the Strait of Hormuz was postponed. Europe is struggling to rebuild its gas inventories, with storage levels remaining below historical norms amid curtailed LNG supplies from the Persian Gulf. Although the European Commission recently said there is no immediate risk to gas security this winter, a prolonged disruption to Gulf LNG supplies could tighten global supply further, forcing European buyers to compete more aggressively with Asia, potentially driving prices even higher as heating demand begins to rise.

European natural gas prices fell below €81/MWh on Friday but remained near their highest level since December 2022, amid persistent disruptions to LNG supplies from the Persian Gulf. Fighting between the US and Iran has intensified over the past two weeks, centering on who controls the Strait of Hormuz. The ongoing blockade has already disrupted around 20% of global LNG flows, primarily affecting shipments from Qatar. Europe has struggled to rebuild its depleted inventories, with storage sites around 67% full, below historical norms. While the European Commission said there's no immediate risk to gas security this winter, a sustained disruption to Gulf LNG supplies could further tighten global supply and force Europe to compete more aggressively with Asia and other buyers for alternative cargoes, potentially driving prices even higher as heating demand begins to increase. Despite Friday's decline, European gas prices are still over 11% higher this week, marking their fifth weekly gain.