European natural gas headed for a fourth consecutive weekly slide, with demand for the fuel not expected to pick up until later this year.
(Bloomberg) — European natural gas headed for a fourth consecutive weekly slide, with demand for the fuel not expected to pick up until later this year.
Near-term futures hit the lowest level since July 2021 earlier this week as industrial consumers wait for lower wholesale costs to be reflected in their energy bills before increasing gas purchases.
Key consumers — from chemical companies to steelmakers — have been reluctant to restore demand after a record surge in energy prices last year prompted them to curb production in Europe. That’s coinciding with relatively muted demand in the rival Asian market and a temporary glut in global supplies, which has been pushing prices down.
While there are fears that some of the industrial demand destruction could be permanent, consultant Energy Aspects Ltd. expects consumption to gain momentum in the second half of the year.
“We expect to start seeing year-on-year growth in gas demand starting next month as lower prices are increasingly passed through, with growth then accelerating over the remainder of the year,” analysts led by James Waddell said in a note. “That said, we maintain some caution that there could be more permanent, non–price responsive, demand loss than we are anticipating this year.”
BloombergNEF also expects demand gains this year, both during the summer — bolstered by the power sector — and the forthcoming winter, citing the steep drop in prices.
“Looking further ahead, the winter forecast contains a lot of uncertainty and risk, which is evident by the sharp contango between summer and winter gas products,” BNEF said in a note this week.
Dutch gas for June delivery, Europe’s most active contract, traded 1.7% lower at €38.54 a megawatt-hour by 5:27 p.m. in Amsterdam after fluctuating earlier. Prices in following months also moved lower on Friday, but a January contract — being the highest for the next winter — headed to a modest weekly advance.
It remains to be seen, however, how much demand could be brought back by European manufacturers. So far, reduced gas costs have been more than offset by lower prices for end-products and deliveries, fertilizer maker Yara International ASA said in a presentation of first-quarter results on Friday.
–With assistance from Elena Mazneva.
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