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(Bloomberg) — European natural gas prices declined for a second day on signs that Russian gas will continue flowing across Ukraine for now, slowing a rush toward bullish bets.
Benchmark futures fell as much as 2.4% early Tuesday, trading around €39 per megawatt-hour.
Geopolitical risks — first in the Middle East, then in eastern Europe — jolted the market earlier this month, causing traders to snap up protection against higher gas prices. Some of those concerns have started to subside, with prices stabilizing after gaining 9% since the start of August.
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“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 to 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 emerging that speculative bets on higher prices may have reached their maximum point after reaching risk limits.
“The build-up of a sizeable net long speculative position in futures markets could be a recipe for large price falls were geopolitical and war fears to recede,” said David Oxley, chief climate and commodities economist at London-based Capital Economics, in a research note on Monday.
Dutch front-month futures, Europe’s gas benchmark, fell 1.33% to €39.13 a megawatt-hour at 10:28 a.m. in Amsterdam.
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