(Bloomberg) -- European natural gas prices erased a large part of August’s gains, with this month’s rally losing steam as traders gain confidence in the region’s supply balance ahead of the heating season.
Benchmark futures fell as much as 5.7% on Tuesday. That took prices to the lowest since Aug. 7, when prices reached what was then the highest level this year on Ukraine’s incursion into Russia near a key gas transit point.
While developments at the border pose a risk for remaining flows from Russia, Europe is heading into the colder months with hefty inventories. Supplies from Norway are relatively steady before a heavy period of maintenance later this month, and industrial demand for the fuel remains lackluster. Liquefied natural gas imports have picked up.
“In our view this gas price rally is overdone,” Goldman Sachs Group Inc.’s head of natural gas research, Samantha Dart, said in a note. “Russian gas has continued to flow through the Ukraine, there has been no actual physical tightening of the balance.”
Goldman expects Europe’s storages facilities to be near a “comfortable” level of 95% full by the end of October, Dart said. The market remains sensitive to supply disruptions, which have the potential to push prices higher.
Risks related to a broader conflict in the Middle East also appeared to ease as a push for a Gaza cease-fire gains momentum. US Secretary of State Antony Blinken said the next step is for Hamas to agree to the proposal aimed at de-escalating the 10-month conflict.
Dutch front-month futures, Europe’s gas benchmark, declined 4.3% to €38.13 a megawatt-hour by 5:42 p.m. in Amsterdam.
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