European Gas Erases Year-to-Date Losses as Israel Vows Response

(Bloomberg) -- European natural gas prices erased 2024’s losses as energy markets feared a broader escalation of the conflict in the Middle East after top Israeli military officials reasserted that their country has no choice but to respond to Iran’s weekend attack.

Benchmark futures jumped as much as 6.6% on Tuesday, heading for a fourth consecutive day of advances. Mounting geopolitical risks this month have forced traders to re-evaluate their optimism for Europe’s energy supplies, after Russian strikes on Ukrainian energy infrastructure and the latest tensions in the Middle East highlighted the vulnerability of global trade flows.

While contracts at one point lost about 30% of their value since the start of the year — with an exceptionally mild winter weighing on gas demand — they’ve now fully offset 2024’s declines.

European and US officials have boosted their calls for Israel to avoid a tit-for-tat escalation that could provoke a wider war. A broader conflict in the region risks pushing up global energy prices further at a time when central banks are still trying to rein in inflation. 

While Europe has ended its heating season with strong gas inventories, traders are on constant alert for signs of supply disruptions. The region doesn’t currently source much gas from the Middle East, but its reliance on global markets has surged since it lost most pipeline flows from Russia in 2022.

Meanwhile, deliveries from top supplier Norway remain depressed following unplanned maintenance at some of the country’s facilities that started over the weekend. The bulk of the works are now expected to last until at least Wednesday, according to the network operator Gassco AS.

Dutch front-month futures, Europe’s gas benchmark, rose  to € a megawatt-hour at 10:47 a.m. in Amsterdam. 

Volatility has also perked up, with investors seeking protection amid concern that the conflict in the Middle East could widen. A measure of the cost of options contracts linked to benchmark Dutch gas has ticked higher over the last 10 days.

©2024 Bloomberg L.P.