(Bloomberg) -- European natural gas fell, with Morgan Stanley seeing room for an even deeper retreat as healthy stockpiles ease a historic energy crisis.

Benchmark futures dropped as much as 6.5%. An ongoing cold spell is forecast to end soon and warmer weather likely to return next week. While gas reserves have declined in recent days, they remain well above the 10-year average and are providing a strong buffer for any increase in demand. 

Traders are also waiting for news on the reopening of the Freeport LNG plant in the US, formerly a major supplier to Europe before an explosion last summer shuttered shipments. Reduced consumption by industries, a mostly mild winter and steady inflows of liquefied natural gas have helped push prices down more than 25% this year, and they are hovering near levels seen before the Russian invasion of Ukraine. 

Morgan Stanley cut its forecast for prices in the third quarter to €47 a megawatt-hour — last seen in August 2021 — compared with €64 estimated a month ago. It expects gas reserves, which are about 70% full, ending the heating season at 59%. That’s double the levels of last year. 

Dutch front-month gas, Europe’s benchmark, was down 5.9% to €54.66 a megawatt-hour by 5:37 p.m. in Amsterdam, after fluctuating earlier. The UK equivalent contract fell 5.9%. Power futures also dropped, with German front-month contract losing 4%.

The European gas market has turned around sharply. It has moved from fears of shortage last year, to potentially a position of glut later this year if current low demand and strong LNG imports continue. Storage sites could be filled up months in advance if the region doesn’t slow down purchases, Morgan Stanley said. That could result in too much gas floating around in the market.      

Countries in “our European perimeter would reach 100% inventory fill as early as August if LNG imports continue at the current pace,” the bank said. 

That view differs from some others, including SEB AB, that have warned that prices staying even at current levels for too long may spur a boost in consumption. Demand discipline will remain crucial for Europe to keep the market in balance.

“It seems prices have found an equilibrium around their current levels,” EnergyScan, the analysis platform of Engie SA, said in a daily note. “Any strong drop below those levels could trigger a rebound in demand from power generation and industry.” 

--With assistance from Anna Shiryaevskaya.

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