Panic has started to return to Europe’s energy market this winter. In particular, natural gas prices were trading at around €37/MWh last September. Earlier this month, they were 55% higher (albeit the price has eased off in the past two weeks).
That spike reflects the large fall in gas inventories (fig 1), driven by cold weather in Northwest Europe (as well as reduced Russian gas imports via Ukraine). Somewhat troublingly, the current inventory trajectory is not dissimilar to that of 2021, when stock levels eventually fell below their usual range (fig 1) and triggered a major price spike (fig 1a). Put another way, there’s no longer an “inventory cushion”, like there was during the past two winters. The risk of an “energy crunch” in Europe is therefore building.
From a models perspective, the message is somewhat mixed. In particular, medium term indicators are on BUY (e.g. see fig 1c), while measured sentiment is relatively bullish (a contrarian SELL signal). Against that, though, net speculative positioning remains SHORT (just, see fig 1b)*.
Overall, given the backdrop of low inventory, cold weather risks, and the lack of bullish positioning, natural gas prices are vulnerable to further upside. For more detail on these dynamics and the near-term risks, please see our latest natural gas research publication.
*Positioning data is based on US futures market positioning (Henry Hub, CFTC). The medium-term indicators, by contrast, reference Europe-based TTF futures. While TTF and Henry Hub prices are typically correlated, that correlation has broken down in recent weeks.
Fig 1: EU natural gas stockpiles (percent of capacity)
Fig 1a: European TTF natural gas futures (1st position, EUR/MWh)
Fig 1b: Net speculative US natural gas LONG/SHORT positions vs. US natural gas futures (USD/MMBtu)
Fig 1c: Longview medium term technical scoring system vs. natural gas futures (USD/MMBtu)
