European Gas Declines as Warm Weather Keeps Demand in Check

(Bloomberg) -- European natural gas fell after two days of gains as unseasonably warm weather curbs demand and eases concerns about shortages for the winter.�

Futures for December delivery dropped as much as 10%. The above-normal temperatures have delayed heating, and allowed gas to continue to be injected into storage sites that are already fuller than normal. Strong inflows of liquefied natural gas and lower consumption by industries are also creating a sudden glut in Europe.�

Read also: Heating Season Postponed as Warm Weather Sweeps Over Europe

Many parts of Europe, from Germany and France to the UK basked in temperatures in the low to mid 20s Celsius this weekend, and the mild weather may persist in most of Europe through mid-November, according to forecaster Maxar. Meanwhile, prices are �likely to drift lower until temperatures drop,� said Ole Hansen, head of commodity strategy at Saxo Bank A/S.�

While full gas reserves will provide a buffer for when temperatures inevitably fall, restocking will be harder for winter next year in the absence of the usual supplies from Russia, which has slashed shipments through pipelines to the continent.

�We have problems in 2023 because in 2023 we don�t have Russian gas,� Claudio Descalzi, Chief Executive Officer of Italy�s Eni SpA, said in Abu Dhabi, warning that the recent fall in prices may not last.�

Dutch gas futures for December, Europe�s benchmark, were 7.8% lower at �128.45 per megawatt-hour by 10:59 a.m. in Amsterdam. The UK equivalent contract declined 6.3%. German year-ahead power fell as much as 6.5%.

Even after the sharp drop from the highs of August, gas futures are still more than four times higher than the five-year average for this time of year. And policy makers are trying to bring more measures to ensure the economy is protected from any further surge in energy costs.�

The European Commission intends to propose a cap on gas prices using a dynamic price mechanism, which could be in place as soon as this winter, in an effort to curb volatile fuel costs. But many suppliers warn that price interference may boost demand and send shipments elsewhere.�

Rival importers may attract cargoes that would otherwise go to Europe by offering just one cent more, Qatar�s energy minister Saad Al Kaabi said in an interview with Bloomberg TV. �The free market is always the best solution,� he said on Sunday.

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