European Gas Prices Rise for Fourth Day on Strait of Hormuz Tensions, Low Storage

European natural gas prices climbed for a fourth consecutive day on Monday, reaching multi-week highs as escalating geopolitical tensions in the Persian Gulf stoked fears of a potential supply blockade through the Strait of Hormuz.

Price Action

The front-month Dutch TTF futures contract, Europe's benchmark for natural gas, rose 1.83% to settle at €62.55 per megawatt-hour, its highest level since July 24. The equivalent UK wholesale gas contract gained more than 2% to 154.01 pence per therm, also a peak not seen since late July. The four-day rally marks the longest winning streak for the European benchmark since that same period.

Dual Supply Threats

The recent price surge is underpinned by two primary concerns for the market: geopolitical risk and critically low inventories.

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• Strait of Hormuz Risk: Traders are pricing in a significant geopolitical risk premium following heightened rhetoric from the United States towards Iran. Washington has warned of a potential maritime blockade of Iranian ports if commercial shipping through the crucial Strait of Hormuz is disrupted. This has already caused delays for liquefied natural gas (LNG) tankers from Qatar, a major supplier to Europe.
• Record-Low Inventories: Compounding the supply fears, European gas storage levels are alarmingly low. According to data from Gas Infrastructure Europe, underground storage facilities across the European Union are currently at just 59% of capacity, a record low for mid-August.

Fundamental Pressures

The low storage levels are a result of persistent high temperatures driving up demand for gas-fired power generation for cooling, combined with the aforementioned LNG import delays. This is hindering the pace of injections needed to build a sufficient buffer for the upcoming winter heating season.

Furthermore, the market is in a state of deep backwardation, where current spot prices are higher than prices for future delivery. This structure creates a commercial disincentive for traders to buy expensive gas now only to inject it into storage for later use. With a light economic calendar this week, market focus is expected to remain squarely on geopolitical developments and supply fundamentals.