Even as current frictions weaken, Europe's natural gas market displays signs of ongoing uncertainty over next winter's fuel supply.

Even as current frictions weaken, Europe's natural gas market displays signs of ongoing uncertainty over next winter's fuel supply.

As approaching contracts have changed due to warmer weather, December futures — the costliest contracts for the remainder of the year — have gained approximately 9% in the last two weeks.

This demonstrates that concerns about Europe's second winter without normal supplies from long-time main supplier Russia have not subsided. For the time being, high supplies and low demand are keeping prompt prices under control. But, traders are keeping a careful eye on a potential comeback in competitor Asian markets, as well as the probability of increased fuel use in power generation and the industrial sector.

All of this year's gas contracts had already lost more than 30% since the beginning of 2023, but reductions in near-term futures are more dramatic.

With a cold start to April, temperatures in the region are predicted to climb in the following days. Renewable energy is also expected to gain traction in areas of Europe, with the UK Met Office issuing wind warnings for this week. While these reasons may lower gas demand even more, French nuclear output remains unclear due to protracted maintenance and strike-related delays.

According to Morgan Stanley analysts, even after adjusting for favourable weather, gas consumption in key European markets remained below the five-year norm. According to them, this increases the likelihood that Europe will refill its fuel stocks well ahead of the next heating season.

A significant comeback in China's LNG purchases, which has been widely watched since the nation loosened its Covid limitations, has yet to occur. According to vessel monitoring data provided by Bloomberg, it even re-exported record levels of LNG in Q1.

Traders are nonetheless concerned about global demand by the end of the year and beyond 2024.

(bloomerg.com, metoffice.gov.uk, morganstanley.com)