European Gas Prices Head for Fourth Weekly Gain on Middle East Tensions, Low Inventories

European natural gas prices are poised for a fourth straight weekly gain, fueled by escalating military conflict in the Middle East and growing fears over supply disruptions ahead of the winter heating season. Benchmark Dutch TTF futures have climbed more than 7% this week as traders weigh the impact of geopolitical risks against critically low inventories.

Middle East Conflict Disrupts LNG Flows

Renewed military strikes involving the U.S. and Iran have sent both European and Asian gas prices to their highest levels in over three years, according to the source report. The conflict has severely impacted shipping through the Strait of Hormuz, a vital chokepoint through which approximately one-fifth of the world's crude oil and liquefied natural gas (LNG) normally passes.

Shipments of LNG from Qatar through the strait have reportedly come to a near standstill. While the United Arab Emirates appears to be loading some LNG cargoes in the Persian Gulf, volumes are said to be far below pre-conflict levels, raising fears of a wider disruption to the region's energy exports if the situation deteriorates further.

Europe's Storage Levels at Record Lows

The supply shock coincides with immense pressure on European nations to replenish their gas reserves. Storage facilities across Europe are currently filled to only 66% of capacity, a record low for this time of year. The situation is particularly severe in Germany, Europe's largest economy, where storage levels are at just 54%.

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These abnormally low inventories leave the continent vulnerable to supply shortages this winter, even with normal temperatures. A prolonged cold snap or a worsening conflict in the Middle East could cause prices to spike significantly higher from current levels.

Global Competition Intensifies

The front-month Dutch TTF contract was trading around €70.78 per megawatt-hour on Friday. In Asia, the spot LNG benchmark, the Japan-Korea Marker (JKM), has risen above $14 per million British thermal units, its highest price since 2023, reflecting a tight global market.

"The escalation in the Persian Gulf further delays hopes for a recovery in LNG exports from the region," wrote ING Groep NV strategists Warren Patterson and Ewa Manthey in a note this week. They predict a fierce bidding war between Europe and Asia for available LNG, "especially with Qatari LNG likely to be absent from the market for the rest of the year."