The war in Iran continues to ferment, and European gas prices are expected to close for the fourth week in a row
The Zhitong Finance App learned that European gas prices are expected to rise for the fourth consecutive week this week, driven by the latest military conflict in the Middle East heightening concerns about supply disruptions and urgent demand to replenish stocks before the winter heating season. Despite fluctuations in the intraday benchmark futures price on Friday, the cumulative increase this week was still over 7%. Recently, as the US and Iran escalated retaliatory military attacks after a short period of relative calm, gas prices in both Europe and Asia soared to their highest level in more than three years.
Shipping in the Strait of Hormuz has been blocked, and Qatar's LNG exports have almost come to a standstill
Before the war, about one-fifth of the world's crude oil and liquefied natural gas (LNG) were shipped to the global market via the Strait of Hormuz in the Middle East. Although some crude oil tankers still continue to navigate this key waterway, Qatar's LNG exports through the Strait of Hormuz have basically come to a standstill.
The UAE side appears to be still loading LNG carriers in the Persian Gulf, but the overall volume is far below pre-war levels. The market is generally worried that if the situation escalates further, energy exports from the entire Gulf region will face the risk of being blocked on a wider scale.
European inventories hit a record low in the same period, and pressure to replenish stocks surged before winter
As the heating season gets closer, Europe is facing tremendous pressure to replenish its natural gas reserves. Currently, the overall filling rate of European gas storage facilities is only about 66%, the lowest level in the same period on record. Among them, the situation in Germany is particularly serious. The gas storage level is only 54%, which is far below the average for the same period in previous years.
Abnormally low inventories mean that even if the temperature is normal in winter, Europe may face a tight supply pattern. Once it experiences a cold wave or the situation in the Middle East continues to deteriorate, gas prices may soar further. ING Groep NV strategists Warren Patterson and Ewa Manthey stated in this week's research report: “The escalation of the situation in the Persian Gulf has further delayed hopes for the recovery of LNG exports in the region.” They expect that as winter approaches, the battle for LNG between Europe and Asia will become more intense, “especially when Qatar's LNG is likely to continue to be absent from the market until the end of the year.”
The geopolitical premium is high, and TTF futures fluctuate at a high level
As of press release, the European gas benchmark, the Dutch TTF futures price for recent months was 70.78 euros per megawatt-hour, which was basically flat during the day, but the weekly increase has stabilized above 7%. Analysts believe that current gas prices fully reflect the geopolitical risk premium in the Middle East, but if the conflict continues to escalate or the threat of Iran blocking the strait comes true, there is still room for gas prices to rise further.
Meanwhile, spot LNG prices in Asia have also followed the rise in Europe. The Japan-Korea Benchmark (JKM) price has broken through $14 per million British thermal units, a new high since 2023. The competition between the two major consumer markets for limited LNG resources will continue to support global gas prices this winter.