European natural gas rebounded from the lowest level in 16 months as traders focused on whether supply was strong enough to tackle signs of recovering demand in Asia.
(Bloomberg) — European natural gas rebounded from the lowest level in 16 months as traders focused on whether supply was strong enough to tackle signs of recovering demand in Asia.
Benchmark futures settled 8.3% higher after tumbling 14% on Monday to the lowest level since September 2021. Europe’s energy crisis has eased dramatically over the past month, taking pressure off politicians and central bankers. Gas inventories are fuller than normal at more than 80%, and liquefied natural gas imports remain strong.
However, a cold snap gripping the region this week will likely drive demand. There also are signs of emerging demand in Asia, which could pull LNG cargoes away from Europe. China’s economy rose 3% last year, far lower than the 8.4% in 2021 yet above economists’ forecasts. Buyers in India and Thailand are also rapidly returning to the LNG market to take advantage of lower prices.
“China’s demand is definitely going to rebound, but whether it’s going to reach the peak of 2021, there seems to be some doubt,” Rob Butler, a partner at law firm Baker Botts LLP specializing in the energy industry, said in an interview. “The general consensus is it will rebound but probably not as high as it was previously.”
For the Next Developments in Europe’s Energy Crisis, Try Asia
Dutch front-month gas futures, Europe’s benchmark, closed at €60.06 a megawatt-hour, reversing an earlier decline. The UK equivalent contract added 10% Tuesday.
Though energy bills aren’t back to where they were two years ago, Europe has managed to cope with the crisis much better than many expected, Jean-Pierre Clamadieu, Engie SA chairman, said in Davos on Tuesday.
“I’m pretty confident to say that there won’t be disruption in the supply of energy, neither gas or electricity, in Europe during the last few months of winter,” he said.
Yet, LNG supplies and demand discipline remain crucial for the continent to keep the market balanced. So far, there are little signs that gas usage is quickly returning, even with prices halving over the past month. Mild temperatures are forecast to return next week, keeping demand in check. Europe’s gas use in the year to October probably will be 16% below the five-year average, Morgan Stanley estimated earlier this month.
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Given the recent drop in futures, options trading has soared. Almost 200,000 option contracts changed hands last week, an all-time high, with turnover dominated by record volume in puts.
–With assistance from Andrew Reierson, Francois de Beaupuy and Elena Mazneva.
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