European natural gas

European natural gas prices have experienced a further decline, reaching their lowest level in nearly two years, as the region grapples with dim demand prospects.

The decline in benchmark futures, which initially saw some gains on Wednesday, has been attributed to weakened industrial demand and abundant gas storage facilities, raising questions about potential supply adjustments by producers.

As Europe enters the warmer months, gas inventories are approximately 66% full, surpassing historical averages. This suggests that the energy crisis may be gradually receding.

However, despite the lower gas prices, the sluggish economic recovery has yet to gain significant momentum, fueling concerns of a potential supply surplus in the market, particularly as storage-refilling efforts begin to slow. This could potentially lead to output restrictions.

An index tracking manufacturing activity in the euro-zone indicates a contraction at the fastest pace since factory closures due to the pandemic three years ago, posing a threat to the overall economy’s momentum.

Concurrently, the relative strength index, a technical indicator gauging the speed of price fluctuations, suggests that gas futures have been oversold in recent days.

Traders remain watchful for the possibility of increased gas consumption in the weeks ahead, should the weather turn hotter. This would likely result in higher fuel usage for air conditioning. The focus also lies on the risks that may arise during the upcoming winter.

“Moving forward, the winter months will be crucial in determining price trends,” remarked Ole Sloth Hansen, Head of Commodities Strategy at Saxo Bank A/S.

The Dutch front-month gas, serving as Europe’s benchmark, witnessed a 1.3% decline, trading at €28.78 per megawatt-hour at 10:22 a.m. in Amsterdam. The corresponding contract in the UK also experienced a decrease.


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