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European Gas Prices Fall as Goldman Alerts to Potential Bearish Risks

by Krystal

(Bloomberg) – European natural gas prices dropped sharply, marking the largest decline in nearly six weeks. This decline follows a recent surge that brought prices to their highest levels of the year.

On Wednesday, benchmark futures fell by 4.6% as the November contract came to an end. Goldman Sachs forecasts that prices could nearly halve if the market receives more Russian gas than anticipated.

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Analyst Samantha Dart noted in a report that Goldman’s primary expectation is that Russian gas shipments through Ukrainian pipelines will stop when a transit agreement expires at the year’s end. She stated, “Any change from the current situation could lead to higher Russian supplies than expected, which would put downward pressure on global gas prices.”

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In September, the market reacted sharply to news about a possible agreement to supply Azeri gas via Ukrainian pipelines. Prices dipped by as much as 9.1% following a media report on the discussions, though no deal has been finalized.

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As the US elections approach, traders must also consider the potential for falling prices if Russia is allowed to supply liquefied natural gas from its sanctioned Arctic LNG 2 facility, Dart explained. Any of these scenarios could drive gas prices down to “the low-to-mid €20s” per megawatt-hour, making them competitive with lignite for power generation.

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Despite Europe’s gas storage facilities being 95% full and mild weather reducing heating demands, the market has been volatile recently. Easing tensions in the Middle East have added further downward pressure on prices this week, but traders remain cautious about potential disruptions. Fluctuating weather forecasts have also contributed to this volatility.

BloombergNEF estimates that if this winter resembles the coldest one in the past decade, in 2017, Europe’s gas storage could drop to about 20% capacity by the end of the heating season. Conversely, another mild winter would only use up about half of the region’s gas inventories.

Dutch front-month futures, which serve as Europe’s gas benchmark, closed at €40.90 per megawatt-hour, the lowest price in over a week. Prices reached their highest intraday level since December on Tuesday.

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