European natural gas prices rallied to their highest point since December 2022 on Tuesday, tracking gains in crude oil as escalating supply disruption fears from the Middle East dominated market sentiment.
The benchmark futures contract surged as much as 5.3% before paring some gains, rebounding after a brief pullback in the previous session. The rally was fueled by news that a scheduled meeting between Iran and several Gulf nations regarding the Strait of Hormuz had been postponed from Monday.
Oil contracts also climbed sharply after Saudi Arabia shut down a key crude pipeline following a drone attack. With no end in sight to the Middle East conflict, European gas prices have nearly tripled so far this year.
Where European buyers face the greatest pressure is the race against time to refill storage facilities before winter arrives — inventories currently sit at unusually low levels. If global gas supply remains tight, competition for cargoes during the European heating season is set to intensify significantly.
Iran had planned to officially unveil a shipping agreement for the Strait of Hormuz, through which roughly one-fifth of the world's liquefied natural gas transits. Oman's Foreign Minister Badr al-Busaidi confirmed the Monday meeting was postponed to allow more time for consensus-building.
Analysts at ING Group said in a research note that "the postponement further reduces the prospects for de-escalation."
Meanwhile, European gas storage facilities are only about 68% full, well below the five-year seasonal average of 84%. Ship-tracking data from Bloomberg shows LNG cargo flows into Northwest Europe increased in early September following the price surge, but volumes have since declined again last week, slowing the pace of storage refilling.
Energy consultancy Timera Energy warned in a report that the low storage levels mean "the winter supply-demand balance will be much more fragile." Should a cold snap or another supply shock occur while cargo deliveries fail to respond in time, the risk of market volatility will rise sharply.