European natural gas gyrated near the lowest level in 16 months as traders focused on whether supply was strong enough to tackle signs of recovering demand in Asia.
(Bloomberg) — European natural gas gyrated near the lowest level in 16 months as traders focused on whether supply was strong enough to tackle signs of recovering demand in Asia.
Benchmark futures swung between gains and losses, after closing 14% lower on Monday. An ongoing blast of cold weather hasn’t pushed prices higher, showing how dramatically the energy crisis has eased, and taken pressure off politicians and central bankers as inflation eases. Gas inventories are fuller than normal at more than 80%, and liquefied natural gas imports remain strong.
But there are signs of emerging demand in Asia, which could pull LNG cargoes away from Europe. China’s economy rose 3% last year, far lower than the 8.4% in 2021, but above economists’ forecasts. It also beat expectations in the final quarter of the year. Buyers in India and Thailand are also rapidly returning to the LNG market to take advantage of lower prices.
“China’s demand is definitely going to rebound, but whether it’s going to reach the peak of 2021, there seems to be some doubt,” Rob Butler, a partner at law firm Baker Botts LLP, said in an interview. “The general consensus is it will rebound but probably not as high as it was previously.”
In Europe though there are little signs that consumption is quickly returning even with prices halving over the past month. Mild temperatures are also forecast to return next week, keeping demand in check. Europe’s gas use in the year to October will probably be 16% below the five-year average, Morgan Stanley estimated earlier this month.
“Even if it makes gas-fired power plants increasingly competitive with coal-fired power plants, it does not lead to an increase in gas demand for power generation because” other cheaper electricity sources will be used first, Engie SA’s EnergyScan said in an emailed note.
Dutch front-month gas futures, Europe’s benchmark, were up 2.9% higher at €57.04 a megawatt-hour at 2:24 p.m. in Amsterdam, after declining as much as 7.3% earlier. They slumped to the lowest level since September 2021 on Monday. The UK equivalent contract added 1.6% on Tuesday.
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As futures prices drop, options trading is soaring. Almost 200,000 option contracts changed hands last week, an all-time high, with turnover dominated by record volume in puts.
–With assistance from Andrew Reierson.
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