Europe's natural gas prices have climbed to their highest level since December 2022, as the ongoing Middle East conflict casts a shadow over supply prospects for the coming months.
Benchmark futures rose for a sixth consecutive session, bringing this month's cumulative gain to nearly 18%. The latest escalation saw Iran-backed Houthi forces attack Saudi Arabia. With winter approaching, uncertainty persists over energy shipments from the Persian Gulf.
A brief cold snap next week could serve as the first test for Europe's gas market. Gas consumption during Europe's heating season typically doubles. European gas storage is at seasonally low levels, and if Middle East energy supply cannot be restored, Europe will be forced to intensify competition for resources.
Rising gas prices also amplify inflation risks, adding pressure to Europe's already fragile economic outlook. RBC Capital Markets said it currently expects a strong El Nino to bring warmer-than-normal winter temperatures to Asia, potentially curbing local energy demand and providing some buffer to the global market. However, weather patterns remain uncertain in the months ahead.
Analysts said in a research note that European gas prices are expected to stay elevated this winter, though futures for 2027 carry downside risk as new liquefied natural gas capacity comes online.
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