European natural gas prices spike due to potential Russian supply cuts and reduced wind power, increasing market volatility.
European benchmark natural gas prices experienced a significant rally on Wednesday and continued to rise into early Thursday, driven by mounting supply concerns and predictions of decreased wind power generation in the coming days.
The Dutch TTF Natural Gas Futures, Europe's key gas trading benchmark, reached their highest level since January following a warning from Austria’s energy company OMV. The warning concerned the possibility of Russian energy giant Gazprom cutting off natural gas supplies to Austria. This potential disruption is tied to a foreign court ruling that could interfere with OMV's payments to Gazprom Export. Despite this, OMV has reassured stakeholders that it can still meet its contractual obligations by supplying gas from alternative sources, thanks to its diversification efforts in recent years.
Adding to the upward pressure on prices, scheduled maintenance at Norwegian gas facilities expected at the end of the month has also contributed to the surge in European gas prices.
Furthermore, weather forecasts reported by Reuters indicate a substantial decline in wind speeds across northwest Europe starting Friday. Germany, in particular, is projected to experience wind speeds below seasonal averages for the next two weeks. This reduction in wind power generation capability is likely to increase reliance on natural gas for power generation.
At the end of last month, portfolio managers exhibited heightened bullish sentiment towards Europe's benchmark natural gas price, positioning for continued market volatility as Europe begins to amass gas supplies in preparation for the next winter season.
Investment managers have expressed concerns over several factors that could impact Europe's gas supply and drive up prices. These include unplanned outages in Norway during the summer, increased natural gas demand in Asia, and the looming expiration of the current gas transit agreement that allows Russian pipeline gas to flow through Ukraine, set to end at the close of 2024.
