European natural gas prices are poised for their fourth weekly increase, with benchmark futures experiencing significant gains amid renewed fighting between the US and Iran. The October contract has already risen by about 10% this week, reaching intraday levels not seen since January 2023. Dutch front-month futures, Europe's gas benchmark, climbed 1.7% to €73.42 a megawatt-hour in Amsterdam and had previously surged as much as 4.3% on Wednesday. The British NBP wholesale gas advanced to 183.95 pence per therm, a peak not observed since 2023.
The ongoing conflict in the Middle East has significantly disrupted global energy markets, particularly affecting flows through the Strait of Hormuz, which remain near a standstill and handle roughly 20% of global seaborne LNG traffic. This disruption forces European buyers into fierce competition with Asian utilities for limited LNG cargoes, contributing to sustained upward pressure on prices. Analysts, such as Tancrède Fulop from Morningstar, do not foresee a repeat of the 2022 energy crisis but warn of Europe's structural vulnerability to another gas shock, with meaningful price normalization unlikely before 2028 when new global LNG supplies become available.
Europe's efforts to rebuild gas inventories ahead of winter are severely threatened by these disruptions. Storage facilities are currently only 65% full, marking the lowest seasonal level since 2009. This is significantly below the five-year average of 82% and the targeted 90% capacity for the start of the heating season. The need to replenish these inventories will strengthen import demand in Europe, potentially diverting more cargoes from East to West and further elevating prices. This scenario also adds complexity to the European Central Bank's assessment of inflation, as energy components drove headline inflation to 3.3% in August.
Despite a recent easing in prices as traders locked in profits, the underlying geopolitical risks remain high. Direct US air strikes on Iranian military targets and retaliatory Iranian missile attacks on US facilities have kept commercial navigation through the Strait of Hormuz at a fraction of pre-war levels. This persistent disruption ensures that structural price floors for European gas will remain elevated, intensifying the scramble for spot volumes as winter approaches.
