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Natural gas prices in Europe have dropped by 30% in July. What to expect next?

Commentaries & Views

It’s scorching in many parts of Europe this summer, making staying indoors for market analysis much more appealing than taking walks in the fresh air. Examining charts is undoubtedly a better option than squinting at the sun. However, despite the endless heat and always-on air conditioners consuming energy, natural gas prices in Europe are at lows – they’ve dropped by 29% since the beginning of July. Why have prices decreased despite the supposed rise in consumption? And what are forecasts for the following months?

First, let’s take a look at the chart with Dutch TTF natural gas price (it serves as a benchmark for continental Europe). There has been a massive drop from the start of July until now.

The natural gas price is a stat important to track as it can impact various markets. However, there are, of course, many other essential indicators. For example, the US dollar index which helps to estimate the strength of the USD compared to other major currencies.

But what about natural gas? Well, a couple of factors have contributed to the current state of affairs. The main driver is the ending of maintenance at the Norwegian Nyhamna gas processing plant. Norway is the largest supplier of natural gas to Europe. In other words, the supply has only increased while the demand stays the same.

The second factor is that EU countries' gas storage facilities are nearly 80% full, which allows market participants to maintain calm.

Besides, the demand of European manufacturers for gas is not too high. And even increased consumption of individuals is not capable of outbidding it.

When it comes to forecasts, analysts believe that we don’t need to be surprised by volatility. Prices might increase in the short term due to local production halts, strike actions, etc. However, the amount of natural gas in storage and the expectation of a warm winter suggest that prices may not experience substantial growth from a broader perspective.

On the other hand, the geopolitical situation in Europe remains unstable, and sometimes markets and prices change too fast. That’s why it's advisable not to solely rely on analysts' forecasts. Instead, timely analysis of the news can help you profit from futures, stocks, or any other assets.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.