Gas prices in Europe keep dropping: Reasons explained
Illustrative photo (Vitalii Nosach, RBC-Ukraine)
European natural gas prices are dropping for the second consecutive day amid signs that Russian gas will continue to flow through Ukraine for now, slowing the sharp rise in rates driven by fears of supply disruption, according to Bloomberg.
Futures at the TTF hub in the Netherlands fell by 1% to €39.1 per megawatt-hour (about $440 per thousand cubic meters).
Geopolitical risks—first in the Middle East, then in Eastern Europe—shook the market earlier this month, prompting traders to seek protection against high gas prices. Some of these concerns have started to ease, and prices have stabilized after a 9% increase since the beginning of August.
"Now that Russia and Ukraine have said they want to continue the gas flows some of the risk premium is easing. But the risk premium from the Middle East is still a reality, and this is why prices will most likely remain in the mid 30s range in the absence of a further escalation," said Florence Schmitt, European energy strategist at Rabobank, noting that prices will remain relatively high.
Europe is also heading into the heating season with large reserves and flows from the leading supplier, Norway, remain relatively stable ahead of a heavy maintenance period later this month. Industrial demand for fuel also remains weak.
There are signs that speculative bets on higher prices may have reached their peak after hitting risk limits.
"The build-up of a sizeable net long speculative position in futures markets could be a recipe for large price falls were geopolitical and war fears to recede," said David Oxley, chief climate and commodities economist at London-based Capital Economics.
Fighting in the Kursk region led to a spike in gas prices in Europe, fueled by concerns over supply disruptions after Russia lost control of the Sudzha gas metering station.
However, according to Bloomberg, Russia and Ukraine intend to continue pipeline gas supplies to Europe.
