Front-month Dutch natural gas futures, the European price benchmark, rose 2.2% to €73.67 ($84) per megawatt-hour during Monday trading as markets awaited developments in talks on reopening the Strait of Hormuz, following a decline of more than 9% last week.
Market awaits resumption of shipping
The gas market is watching to see whether the negotiations will allow shipping to resume through the Strait of Hormuz. Iran said it would not ease its conditions for reopening the strait after U.S. President Donald Trump rejected its latest proposals, while Trump indicated that talks could resume this week.
The impact of the disruption to the strait extends beyond the volume of cargoes Europe imports directly from the Gulf, as about one-fifth of global liquefied natural gas supplies passed through it, according to the International Energy Agency. Prolonged disruption is intensifying competition between European and Asian buyers for available cargoes, while European countries seek to replenish their storage facilities ahead of the heating season.
Storage levels below five-year average
European gas storage facilities are about 71% full, versus a five-year seasonal average of 87%, while the level in Germany is just over 57%.
Despite the low storage levels, the European Commission said on Friday that supplies to the bloc remain stable and that it continues to monitor winter preparations.
Winter price scenarios
Marco Salfrank, head of commodity trading at Swiss company Axpo, said prices could exceed €100 ($114.03) per megawatt-hour this winter if supply disruptions coincided with severe cold spells in Europe and Asia.
Salfrank said resolving the transit crisis could push prices lower, but continued uncertainty could prevent them from quickly returning to pre-war levels, which were below €30 ($34.21) per megawatt-hour.
