(Bloomberg) -- European natural gas prices slumped, shrugging off a cold snap across much of the continent in a sign that traders are starting to shift their focus to the next season.
Benchmark front-month futures closed 4.9% lower at €38.13 a megawatt-hour — just above the level of the contract for April, which marks the start of the six-month summer season.
The narrowing price gap illustrates the market’s growing confidence that the region will tackle this winter comfortably, with storage levels still around 94% after the first major cold period across Europe. The summer now presents challenges as the need to fill storage sites for the following winter adds to lingering geopolitical risks and uncertainty around Russian supply.
“Given current weather forecasts and our storage modeling, we see summer 2024 pricing being above 2023 levels,” Adnan Dhanani, an analyst at RBC Europe Ltd., said in a research note. The focus has “quickly moved to where storage shakes out at the end of winter.”
A potentially colder winter than last year in Europe will result in gas storage being about 40% full by the end of March, “which should support summer 2024 pricing, and appears reflected in current futures,” he said. That’s below the 56% end-of-winter inventory level in 2023.
For now, an abundance of liquefied natural gas supply is pressuring prices. LNG imports in western Europe last month surged to the highest level since May, and the first days of December signal robust supply will continue in the coming weeks. Congestion at the Panama Canal means more US LNG cargoes are opting to land in Europe rather than face delays in the waterway or go longer journeys to Asia, where demand has been muted.
The front-month contract settled at the lowest level since early October, the start of the current heating season. Gas for April closed at €38.06.
--With assistance from Elena Mazneva and Priscila Azevedo Rocha.
©2023 Bloomberg L.P.