European gas extends rally past 61-euro as Hormuz impasse drives supply fears

European natural gas prices rose sharply on Tuesday, sustaining an aggressive two-day rally amid mounting supply concerns rooted in the collapse of diplomatic talks between Iran and the United States. Benchmark Dutch front-month futures soared to 61.80 per megawatt-hour, up 8% from the previous session. British wholesale contracts mirrored the surge, climbing to near 151.5 pence per therm as energy market participants priced in heightened geopolitical risk.

The surge stems from the irreconcilable impasse in Middle East negotiations, following U.S. President Donald Trump's demand that Tehran pay compensation for regional casualties. Iran insisted the Strait of Hormuz would remain closed to commercial traffic until Washington agreed to additional conditions. This standoff continues to choke LNG flows through the critical maritime chokepoint, with Qatar-origin cargoes delayed or rerouted.

European utilities are racing against time to prepare for the winter heating season, with storage caverns at mid-August levels of just under 57% capacity, far below the five-year average of roughly 71% for this period. The shortfall has been worsened by summer heatwaves across Europe, driving up air-conditioning demand and prompting power plants to burn more natural gas instead of storing it.

As European buyers compete fiercely against Asian importers for uncommitted spot LNG cargoes, analysts warn that natural gas prices will stay elevated until the Persian Gulf shipping routes are fully reinstated.