European Gas Prices Fluctuate Amid Worries About Abnormal Heat

European natural gas prices fluctuated after closing at the lowest level in almost 22 months, with some weather models forecasting a searing summer that could bolster fuel demand.

(Bloomberg) — European natural gas prices fluctuated after closing at the lowest level in almost 22 months, with some weather models forecasting a searing summer that could bolster fuel demand.

Scientists at the Copernicus Climate Change Service see a probability of more than 60% that temperatures across Spain, France and Italy will be well above average from June to August, according to an outlook released this week. That could mean higher fuel demand to power air conditioning, just as energy companies try to replenish gas inventories ahead of the winter.

Together with lower wind output in parts of Europe in recent days — especially the UK — that’s added some support to prices after a relatively continuous slide. Wind turbines were covering less than 2% of Britain’s total power generation on Thursday, according to grid data, with gas plants contributing over 70%.

That’s already resulted in some gains in UK’s day-ahead gas prices earlier this week, although models point to a rebound in wind output in the UK from Friday. The growing fleet of wind farms in the country — as well as in continental Europe — has helped to cut gas consumption.

European gas prices have dropped more than 50% this year, due to factors including strong imports of LNG, high fuel stockpiles after a mild winter and relatively muted demand in rival Asian markets. Yet the possibility of abnormal heat and drought this summer remains a major short-term risk, and traders are closely watching weather forecasts.

Dutch front-month gas, Europe’s benchmark, pared earlier losses and was down 0.5% at €34.84 per megawatt-hour by 12:21 p.m. in Amsterdam. The UK equivalent contract was little changed.

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