European Gas Prices Extend Decline

European natural gas prices dropped more than 5% to below €64 per megawatt-hour on Wednesday, extending losses from the previous session as signs of progress in the Middle East talks eased fears of a squeeze on energy supplies. Iran’s and Oman’s foreign ministers said that they discussed plans for a temporary transit corridor through the Strait of Hormuz, along with a project to clear mines from the waterway. Pakistan also said on Tuesday that it had made significant progress in talks with Tehran aimed at ending the war. The US decision to return diplomats to the Middle East also allayed fears of a further escalation in the conflict. However, supply risks remain as the ongoing maritime blockade continues to disrupt physical LNG flows from the Persian Gulf, with shipments from major exporter Qatar facing severe delays. Persistent hot weather across Europe is also driving higher electricity demand for cooling, slowing the pace of seasonal gas storage injections.

European natural gas prices fell below €67 per megawatt-hour, easing from Monday’s 3½-year high of €68.46, as improving prospects for de-escalation between the US and Iran reduced some concerns over supply disruptions. Gas prices tracked a broader decline in energy markets after Washington’s latest measures against Tehran appeared less likely than expected to disrupt physical supplies. Diplomatic efforts also offered some relief, with Pakistan’s army chief visiting Iran and Qatar continuing to support mediation between Tehran and Washington. Reports that the US could begin returning evacuated diplomats to the Middle East also suggested that an immediate escalation in the conflict may be less likely. Nevertheless, supply risks remain, particularly as disruptions around the Strait of Hormuz have constrained LNG deliveries from Qatar. At the same time, persistent hot weather is boosting cooling demand, making it harder for European countries to rebuild gas inventories ahead of winter.

European natural gas prices held above €68/MWh on Tuesday, the highest level since January 2023, as fresh US measures against Iran intensified concerns over further disruptions to energy supplies from the Persian Gulf. The US Treasury said expanded secondary sanctions would target Iran’s digital assets, technology, gold, aviation and shipping sectors. It also imposed new sanctions on nearly 60 entities, individuals, and vessels allegedly involved in generating oil revenues for Iran, procuring weapons, and supporting cyber operations. These developments have added to already elevated supply risks in Europe, where the continued blockade of the Strait of Hormuz has constrained LNG deliveries from Qatar. The disruption has coincided with stronger cooling demand amid persistent heatwaves, making it more difficult for Europe to rebuild gas inventories and heightening fears that the region could enter the winter heating season with insufficient supplies.