(Bloomberg) -- European natural gas prices declined as a recent cold snap gave way to milder temperatures, allowing fuel inventories to continue building up while demand remains subdued.
Benchmark futures declined as much as 4.7% on Monday after contracts slipped 2.3% last week.
The continent has ample fuel supplies as it heads into winter, with liquefied natural gas imports picking up from recent lows and inventories brimming from Germany to Italy. While a period of colder weather last week caused gas injections to storage sites to slow — with some nations such as Germany and the Netherlands registering small net withdrawals — the return to milder weather will likely allow inventories to continue building.
European storages sites are expected to exit the winter a little over 50% full, if the weather is normal, UBS Group AG analysts led by Nayoung Kim said in a note.
In addition, concerns about industrial demand from Europe and its trade partners continue to keep a lid on global gas prices. In China, a key energy consumer, industrial output marked its longest slowing streak since 2021 last month, with the official economic growth goal of 5% for this year looking increasingly out of reach.
In Europe, gas demand was 4% lower year-on-year in the first eight months of the year, and about 20% below the five-year average to 2021, UBS said. The bank slightly cut its European gas demand forecast for this year and 2025 due to renewable output and weak industrial activity.
Dutch front-month futures, Europe’s gas benchmark, slumped 4.1% to €34.20 a megawatt-hour at 5:24 p.m. in Amsterdam. German year-ahead power prices followed gas lower, reaching the lowest since April 10.
“With geopolitical risks easing and temperatures having risen from the first cold snap of this second half of the year, the gas market is set to weaken further and so is the power market,” said Florence Schmit, energy strategist at Rabobank. “The major upside risk at the moment remains the development of the weather over the winter period.”
--With assistance from Elena Mazneva.
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