Europe’s natural gas prices surged on Monday, reaching a two-year high and surpassing the $100 per barrel oil equivalent mark. This sharp rise comes amid cold winter temperatures and rapidly depleting gas inventories, making oil a more cost-effective fuel option for industrial use.
Dutch TTF Natural Gas Futures, the benchmark for Europe’s gas trading, increased by 4% in Amsterdam, hitting the highest levels since February 2023. The extended cold snaps, which mark Europe’s first true winter since the 2022 energy crisis, have caused natural gas stocks to drop to their lowest point for this time of year since the crisis began.
As a result, prices are climbing, and with Europe heavily reliant on LNG imports for its gas supply, industries are turning to oil and coal, which are now more affordable than natural gas in many cases.
This shift from gas to oil could lead to higher oil demand in both Europe and Asia in the first quarter of the year. This trend could also prompt OPEC+ to consider increasing oil output, analysts say.
“The rise in natural gas prices provides a bullish boost for oil,” said Bjarne Schieldrop, Chief Analyst for Commodities at SEB Bank. He added that even 10ppm diesel is now cheaper than natural gas, prompting global consumers to opt for oil products over gas if their natural gas prices are determined by the LNG market.
“Both Europe and Asia will likely increase their use of oil and coal wherever possible,” Schieldrop said.
The spike in natural gas prices comes as Europe’s gas storage levels are dropping faster than in the past two years. According to ING analysts, current stockpiles are at their lowest point since 2022, with inventories only 49% full, compared to 67% at the same time last year.
“With storage levels tightening, the situation could continue to put upward pressure on energy prices,” said ING commodities strategists Warren Patterson and Ewa Manthey.
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