European natural gas prices declined as market expectations of weakening demand outweighed concerns that escalating Middle East tensions could disrupt the recovery of regional energy supplies.
Benchmark futures fell as much as 2.6% on Thursday. However, prices remain elevated, having risen nearly 20% this month and more than doubled since the Iran conflict broke out.
Warmer-than-expected temperatures at the start of the heating season have eased competition for gas and capped price gains, despite a tight global market and recovering procurement demand from Asia.
A research note from Morgan Stanley said a mild winter is expected to reduce Europe's winter natural gas demand by 6% year-on-year. But with the Middle East conflict ongoing, Europe still faces pressure to secure liquefied natural gas supplies and replenish storage facilities.
Currently, storage facilities are only slightly above 74% full, compared with a seasonal average of 89%.
Weather modeling and analysis by Vaisala show that the previously forecast cooling across northwestern Europe is expected to be significantly narrower in scope. Temperatures will briefly drop this weekend, but most of Europe will return to warmer weather next week; the Iberian Peninsula will remain relatively cool.
Meanwhile, Morgan Stanley raised its winter natural gas price forecast from 85 euros per megawatt-hour to 90 euros per megawatt-hour. Analysts including Charlotte Filkins said in the report that the reason is that Qatar's LNG export recovery cycle will be longer, expected to extend into the first quarter of next year.
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