European gas: Prices stay elevated as supply tightens – Commerzbank

FXStreet Insights Team FXStreet

Norman Liebke at Commerzbank expects European gas prices to remain high in the near term, even if the Strait of Hormuz reopens sustainably. War damage to Qatar’s LNG infrastructure, low European gas storage levels and stronger Asian LNG demand linked to El Niño underpin a tight market, with relief only seen longer term as US and Qatar expand export capacity.

Tight LNG keeps prices supported

"Even if the Strait of Hormuz remains open on a sustained basis, European gas prices are likely to remain high for the time being. This is because LNG supply is expected to remain lower than it was before the Iran war for some time, gas storage levels are low, and LNG demand from Asia is likely to pick up."

"If the Strait of Hormuz were to remain open on a sustained basis, the price of gas in Europe would certainly fall again. However, even then, it would likely not return to pre-war levels. In our view, there are three reasons for this."

"European gas storage levels remain low. They currently stand at only about 52%, nearly 15 percentage points below the average for the past five years. As a result, demand for gas to fill the storage facilities is likely to remain high in the coming months."

"If we take the daily changes over the past five years as a possible trajectory for gas storage levels, they are expected to peak at 75% by the end of October. That would be the lowest level since the data series began in 2009 and thus slightly lower than the 77% reached at the end of October 2021."

"Finally, due to the El Niño weather phenomenon, numerous extreme weather events are expected in the coming months, particularly in Asia. With a severe heat wave feared and the resulting increased use of air conditioners, electricity demand is likely to rise. This, in turn, could also increase the demand for gas-fired power and thus drive up the price of gas."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

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