(March 5): European natural gas prices resumed their sharpest rally in years as uncertainty around the war in the Middle East continues to rattle energy markets.
Benchmark futures jumped as much as 13% on Thursday. The contracts fell a day earlier as the market weighed the viability of an American plan to ensure safe passage for tankers through the Strait of Hormuz, which has so far lacked details. Traders are still pricing in big supply disruptions around the globe.
Global energy markets have been rocked by the war, which is entering its sixth day with no immediate prospect of a resolution in sight. The trade disruptions are raising the specter of a global energy crisis and sparking inflationary fears.
Europe’s gas market is particularly vulnerable after prolonged cold stretches this winter depleted already-low fuel reserves. It will need to buy more LNG this summer to refill them, and risks facing stiff competition for cargoes if Middle Eastern supplies aren’t able to reach global markets.
“There is no solution is sight for a reopening of the Strait, so the fear of too little LNG supplies are rising by the day,” said Arne Lohmann Rasmussen, chief analyst at Global Risk Management.
See also: Asian LNG dips from three-year high as traders weigh Hormuz plan
European gas spiked to a three-year high earlier this week after Qatar shut Ras Laffan, the world’s biggest LNG export plant, following an Iranian drone assault. Tanker traffic via the Strait of Hormuz has all but ground to a halt, with the route normally accounting for about a fifth of the world’s LNG supplies.
While Asian countries buy most of the LNG shipped from the Middle East, any prolonged disruption to flows narrow the pool of available supplies — keeping prices elevated worldwide. Buyers are already scrambling for alternatives: Taiwan says it has secured LNG supplies for April from regions outside the Middle East, while Thailand is seeking extra shipments.
Dutch front-month futures, Europe’s gas benchmark, rose 9.2% to €53.26 a megawatt-hour by 8:25am in Amsterdam.
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