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2023-01-05 16:25:00

EUROPEAN GAS PRICES UPDOWN YET

EUROPEAN GAS PRICES UPDOWN YET

BLOOMBERG - Jan 5, 2023 - European energy prices halted their dramatic slide as traders focused on risks that could tighten the market, even with historically warm weather keeping a lid on demand.

Benchmark natural gas futures rose as much as 4.9%, reversing an earlier loss. The contract on Wednesday settled at the lowest level since October 2021. Power prices also jumped.

Europe is poised for the warmest January on record, providing some relief from its energy crisis amid reduced Russian gas flows to the region. Still, prices for the fuel are higher than normal and the continent remains exposed to any further supply disruptions. Global markets for liquefied natural gas remain tight as Europe and Asia vie for cargoes.

“There are still plenty of risks around the remaining Russian supply and also the potential for increased competition for LNG from China, as the country drops its zero-Covid policy,” Warren Patterson, head of commodities strategy at ING Groep NV, said in a report. “Prices will still need to remain elevated to ensure demand destruction keeps the market in balance through the 2023-24 winter.”

Dutch front-month futures, the European gas benchmark traded 2% higher at to €66.30 per megawatt-hour by 12 p.m. in Amsterdam. The UK equivalent contract also rose. German power for next month increased 2.3% to €166 per megawatt-hour.

Easing Crisis

Still, the recent gas price slump — a drop of more than 50% for the Dutch benchmark since the start of December — has helped to alleviate the crisis for European economies. In France, inflation unexpectedly slowed in December, while in Germany it eased more than anticipated.

Prices have declined so much lately that they are already close to a level to encourage gas — instead of coal — for electricity generation, according to EnergyScan, the market analysis platform of Engie SA.

If prices don’t rebound from the current levels, “it would mean that the gas market is really comfortable and that gas consumption for power generation can continue to increase,” the firm’s analysts said in a note.

Gas markets could tighten again this year as LNG supplies will be limited, with no new major export projects starting in the near term. Competition for cargoes with Asia could also increase.

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Earlier:

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Tags: EUROPE, RUSSIA, GAS, PRICES, SANCTIONS