(Bloomberg) -- European natural gas prices slipped for a second day, taking a pause from this month’s rally as Russian pipeline flows continue across Ukraine for now.
Benchmark futures declined 0.5% to close below €40 per megawatt-hour on Tuesday. The contract had on Monday snapped a four-day rally.
Geopolitical risks — first in the Middle East, then in eastern Europe — jolted the market in recent weeks, helping to push futures up by about 10% this month. That caused traders to snap up protection against volatility.
“Now that Russia and Ukraine have said they want to continue the gas flows some of the risk premium is easing,” said Florence Schmit, a European energy strategist at Rabobank. “But the risk premium from the Middle East is still a reality, and this is why prices will most likely remain in the mid-30s range in the absence of a further escalation.”
Europe is also heading into the heating season with hefty inventories, and flows from top supplier Norway are relatively steady ahead of a heavy period of maintenance later this month. Industrial demand for the fuel also remains lackluster.
Signs are now emerging that speculative bets on higher prices may have reached their maximum point after reaching risk limits.
“The build-up of a sizable net-long speculative position in futures markets could be a recipe for large price falls were geopolitical and war fears to recede,” David Oxley, chief climate and commodities economist at London-based Capital Economics, said in a research note on Monday.
Dutch front-month futures, Europe’s gas benchmark, settled at €39.48 a megawatt-hour.
--With assistance from Anna Shiryaevskaya.
©2024 Bloomberg L.P.
