European Gas Futures Hold Near Multi-Month Highs on Houthi Attacks

European wholesale natural gas prices held near multi-month highs on Wednesday, as fresh maritime attacks in the Middle East sustained a geopolitical risk premium and heightened anxieties over the continent's winter energy supplies.

Market Reaction

The front-month Dutch TTF contract, Europe's benchmark for natural gas, traded up 3% to approximately €61.7 per megawatt-hour (MWh). This keeps the contract near its highest levels since late March, according to market data.

The equivalent British wholesale gas contract saw a similar increase, rising 3% to 149 pence per therm. The price action reflects sustained market concern over the security of seaborne energy transportation.

Geopolitical Pressures

The gains are primarily driven by renewed strikes from Yemen's Iran-aligned Houthis against commercial vessels in key Middle East shipping lanes. These incidents follow the group's recent declaration of a naval blockade on Saudi Arabia and come less than a week after a commercial tanker caught fire near the critical Strait of Hormuz.

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In response to the escalating threats from drones and mines, insurance underwriters have increased war-risk premiums for vessels transiting the region. This raises the cost and complexity of transporting liquefied natural gas (LNG) and other energy products to Europe.

Supply Vulnerabilities

The market tensions coincide with a period of vulnerability for European energy security. The continent's underground gas storage facilities are currently at approximately 53% capacity, which is about 15 percentage points below the five-year seasonal average. This lower-than-normal inventory leaves the region more exposed to supply disruptions, particularly as a summer heatwave boosts gas demand for power generation.

The persistent rise in energy costs also presents a challenge for the European Central Bank, which is set to meet on Thursday. Policymakers may be inclined to maintain a hawkish stance to prevent higher energy prices from fueling broader inflation expectations.