EU NatGas Jumps Again, Up 15% As Supply Fears Driven By Extended Outages In Norway

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by Tyler Durden
Tuesday, Jun 13, 2023 - 02:25 PM

European natural gas prices erupted for the second time in days after outage concerns at major Norwegian gas plants and fields sparked concerns among traders about tightening supplies. 

Dutch month-ahead gas futures, Europe's benchmark, jumped as high as 14.4% to 35.50 euros a megawatt-hour in Amsterdam late in the European session. EU Natgas prices bottomed at the start of the month at around 22 euros and have since risen 54%. 

Bloomberg said outages at major oil and gas facilities in Norway had been extended through mid-July and had been one of the catalysts for the surge in EU NatGas prices today.

The outages will affect major facilities including Ormen Lange, Nyhamna and Aasta Hansteen, according to notices posted by network operator Gassco AS. The moves signal that the market still remains sensitive to supply shocks, with traders balancing out sluggish industrial demand and high inventory levels as the region prepares for the upcoming winter. 

Besides plant outages, Bloomberg said hot weather in certain parts of the Northern Hemisphere would drive up cooling demand, thus increasing the need for the fuel: 

Prices have been volatile in the past week amid an array of competing factors, including plant outages and the onset of unusually hot weather in Europe and Asia, which could raise cooling needs and competition for fuel imports.

Last Friday, EU NatGas surged as high as 23%, the biggest one-day move since June 2022, on supply fears due to outages, a short squeeze, and hotter weather. 

As a reminder, Norway has replaced Russia as the top supplier of NatGas, and this is why traders focus on the Scandinavian country. 

Europe is preparing for the upcoming heating season and is expected to have fuller-than-average NatGas storage levels. However, analysts at Bernstein said Europe's NatGas storage levels would fall to 48% by the end of the winter season, below levels seen earlier this year. 

The surge in Europe has also increased US NatGas prices, up nearly 4% on the session. 

As for the US, NatGas prices have been range bound between $2-3 level for much of this year, weighed down by high production. 

Meanwhile, investors have plowed billions of dollars into BOIL and UNG, two exchange-traded funds that follow NatGas futures. Both funds own about 30% of the front-month futures contracts for NatGas, which is extraordinarily high compared to other ETFs in other commodity markets. Such a large position can spark volatility.