European Gas Prices Hold Near Multi-Year Highs on Middle East Supply Risks

European and UK wholesale natural gas prices held near multi-year highs on Thursday, extending a recent rally as escalating military conflict in the Persian Gulf threatens global energy supply chains ahead of the winter heating season.

Price Action

The Dutch TTF front-month contract, the benchmark for European gas, rose 0.5% to €79.64 per megawatt-hour, hovering near its highest level since 2023, according to market data. In the United Kingdom, the NBP wholesale contract gained 0.6% to 198.00 pence per therm, approaching its highest point since late 2022 and nearing the key psychological threshold of 200 pence.

Geopolitical Tensions and Supply Risks

The price surge is linked to rising geopolitical risk in the Middle East. Recent events, including attacks by Houthi militants on Saudi Arabian cities and direct military exchanges between the United States and Iran, have heightened concerns over the security of the Strait of Hormuz. This vital shipping lane handles approximately 20% of the world's liquefied natural gas (LNG) transport, primarily from Qatar.

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Fears of a potential disruption or long-term blockade are forcing European energy buyers into intense competition with Asian importers for available LNG spot cargoes from the Atlantic basin. This comes as crude oil prices are holding firm above $100 a barrel, adding to broad-based energy market anxiety.

Low Inventories and ECB Policy

The supply shock is occurring at a vulnerable moment for Europe, which is ending its summer gas injection season with unusually low inventories. According to data from Gas Infrastructure Europe, the continent's underground storage facilities are currently filled to about 62% of capacity, which is roughly 17 percentage points below the five-year seasonal average.

Soaring energy costs form a critical backdrop for the European Central Bank's (ECB) monetary policy decision expected later on Thursday. Markets have largely priced in a 25 basis point interest rate hike, which would lift the benchmark marginal lending rate to 2.50%. The move would be aimed at preventing higher energy prices from fueling broader, second-round inflationary effects across the eurozone economy.