Europe Gas Resumes Gains on Fears of Wider Middle East Conflict

(Bloomberg) -- European natural gas prices resumed gains on mounting fears that the conflict in the Middle East will widen and affect global flows of the vital fuel ahead of winter. 

Benchmark futures advanced as much as 6.1% on Friday, following gains in oil. While they’re headed for a marginal weekly loss after recent declines, prices are still about 35% higher since before the Oct. 7 attack on Israel by Hamas, which is deemed a terrorist organization by the US and European Union.

Concerns are growing that the US could be pulled into a wider regional war in the Middle East. The US is seeing stepped-up drone attacks in Iraq and Syria, the Pentagon said, while an American destroyer intercepted cruise missiles fired toward Israel by Houthi rebels in Yemen. In addition, President Joe Biden appealed directly to the American people to support funding for Israel, as well as Ukraine’s war efforts. 

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The Israeli-Hamas conflict has so far led to the shutdown of a major field supplying Egypt, raising questions over liquefied natural gas exports from the North African nation. Egypt’s share in Europe’s gas supply is not significant, but a wider conflict and potential Iranian involvement could also increase security risks for Qatari LNG vessels passing through the Strait of Hormuz.

“The largest risk to the European and global balance concerns the potential escalation of the Hamas–Israel conflict to involve Iran and generate tensions over the use of the Strait of Hormuz,” Energy Aspects Ltd. said this week. 

Such an involvement could also raise security risks for international gas pipelines in the region, think tank Bruegel said.

“The ongoing conflict between Israel and Hamas, the Palestinian militant group, poses a serious threat to the regional natural gas market and could have knock-on effects on Europe’s liquefied natural gas supply as winter approaches,” Rystad Energy said in a note. 

Dutch front-month futures, Europe’s gas benchmark, rose  to € a megawatt-hour at 9:22 a.m. in Amsterdam. 

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