Natural gas price outlook as Europe builds on winter reserves

natural gas price

Natural gas price in Europe dropped for the fourth week in a row as the continent prepares for the winter season. The significant increase in LNG supplies has helped countries within the continent build on their stockpiles ahead of the period of heightened need for heating.

The benchmark Dutch front-month gas futures dropped by 1.05% on Friday; ending the week at 185.49 euros per megawatt-hour (MWh). Notably, it has declined by about 1.2% over the course of the week. This week, the asset has recorded its longest streak of losses since June. Even so, European natural gas price remain about 6 times higher than the average for this time of year.

At the same time, the equivalent natural gas futures in the UK dropped by 0.4% on the week’s last trading session; posting the fourth consecutive week of losses. The benchmark German year-ahead electricty futures also dropped by 6.8%.

natural gas price
natural gas price

What’s driving the market?

The energy crisis in Europe, which was triggered by Russia’s invasion of Ukraine in late February, has largely been behind the high inflation recorded in the region. Indeed, natural gas price rose to a record high in late August.

Countries within the eurozone have been striving to build on their inventories ahead of the winter season set to commence in October. Notably, those efforts appear to be paying off. In particular, gas storage facilities within the continent are about 87% full. Besides, data released by Bloomberg shows that four additional LNG cargo ships from the US are headed to northwest Europe.   

What to expect next week

Even with the rise in supplies, natural gas price will be subject to high volatility in the coming week. At the back of traders’ minds is the curbed Russian supplies to the continent. Indeed, Russian gas flows via Ukraine may decline on Saturday.

Granted, such situations have occurred in the past and may get back to normal within a short period. Even so, investors will be closely watching to see if the situation persists.

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