US-Iran conflict fuels supply concerns, driving European natural gas prices to highest levels since January 2023

⑴ European natural gas prices broke through €63 per megawatt-hour on Friday, reaching their highest level since January 2023. The ongoing escalation of tensions between the US and Iran has sparked a new round of concerns in the market about the security of Europe's liquefied natural gas supply.⑵ The US military carried out airstrikes against Iran for the 13th consecutive night, while Trump warned both Iran and Yemen's Houthi militants that any further attacks on Red Sea vessels would face "significant military punishment." Geopolitical risk premiums continue to flow into the natural gas market.⑶ This week, European gas prices have risen by more than 10%, with prices surging over 45% since July. The main cause is a reduction in liquefied natural gas outflows from the Persian Gulf, forcing European and Asian buyers to compete fiercely for limited spot cargoes.⑷ Meanwhile, unusually high temperatures across much of Europe have driven up demand for electricity used in cooling, resulting in increased natural gas consumption by power utilities and simultaneous pressure on both supply and demand.⑸ Equinor, Europe's largest natural gas supplier, warned that before the heating season arrives, Europe may find it difficult to reach its 80% gas storage target. This means insufficient inventory buffer will expose the market to greater price volatility risk during the winter, making it easier for gas prices to rise in the short term than to fall.