(Bloomberg) -- European natural gas prices steadied at the lowest level in almost 22 months, with traders weighing signs of a supply glut against forecasts of a searing summer that could bolster fuel needs.
Scientists at the Copernicus Climate Change Service see a probability of more than 60% that temperatures across Spain, France and Italy will be well above average from June to August, according to an outlook this week. That could mean higher fuel demand to power air conditioning, just as energy companies try to replenish gas inventories ahead of the winter.
Together with lower wind output in parts of Europe in recent days — especially the UK — that’s added some support to prices after a relatively continuous slide. Wind turbines were covering less than 2% of Britain’s total power generation at some point on Thursday, according to grid data, with gas plants contributing over 70%.
That’s already resulted in some gains in the UK’s day-ahead gas prices earlier this week, although models point to a rebound in wind output in the UK from Friday. The growing fleet of wind farms in the country — as well as in continental Europe — has helped to cut gas consumption.
European gas prices have dropped more than 50% this year, due to factors including strong imports of LNG, high fuel stockpiles after a mild winter and relatively muted demand in rival Asian markets. Yet the possibility of abnormal heat and drought this summer remains a major short-term risk, and traders are closely watching weather forecasts.
In addition, risks remain for next winter, with weather and Asian demand in focus.
“We should bear in mind that we have still flows from Russia coming into Europe that could end any day,” RWE AG Chief Financial Officer Michael Mueller said on an earnings call with analysts Thursday. “And these feeds aren’t only required as we go into winter but also through the winter in order to supply the demand and also to refill the storage levels.”
Dutch front-month gas, Europe’s benchmark, settled unchanged from the previous day, at €34.99 per megawatt-hour. The UK equivalent contract added 0.2%.
“It feels very much like the calm before the potential storm at the moment as we head into winter 2023,” said Nick Campbell, a director at Inspired Energy.
--With assistance from Anna Shiryaevskaya and Josefine Fokuhl.
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