European Gas Prices Fluctuate With More Cold Weather on the Way

(Bloomberg) -- European natural gas prices fluctuated as traders assessed forecasts for a return of colder weather that may further test the region’s inventories.

Benchmark futures swung between small gains and losses on Monday after shaving 2.7% off their recent rally on Friday. They’re still up about 16% since the start of November, and temperatures are expected to drop again in the coming days after a mild start to the week. 

Chilly and low-wind conditions have prompted faster-than-usual withdrawals from gas storage sites this month. While they’re still about 88% full, faster fuel consumption leaves the region more vulnerable during late winter and next summer’s stockpiling campaign. 

“It’s still early on in the drawdown season, so the impact of weather can make a large difference in expectations of tightness next year,” said Sadnan Ali, an oil & gas analyst at HSBC Holdings Plc. He expects Europe will exit the heating season with inventories 42% full, well below last year’s 59%.

Aside from weather forecasts, other supply risks are also being closely watched, such as the fate of remaining Russian gas flows across Ukraine. 

Fighting has intensified between Moscow and Kyiv after US President Joe Biden allowed Ukraine to hit military targets deeper inside Russia in anticipation of President-elect Donald Trump’s return to the White House, who has pledged to quickly end the war. 

Russia’s deal to transit gas via Ukraine expires at the end of the year, with no alternative arrangement yet agreed. US sanctions on Gazprombank, which handles payments for Russian gas by European customers, elevate the risk that those supplies may stop earlier. 

Dutch front-month futures, Europe’s gas benchmark, edged  higher to € a megawatt-hour by 9:24 a.m. in Amsterdam. 

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