Is TTF gas fairly priced as Hormuz, winter risks keep prices elevated?

European natural gas prices appear to be pricing in excessive risk due to the uncertain reopening of the Strait of Hormuz and the approaching winter, according to a Citigroup analysis. The bank estimates a probability-weighted winter price of about €61 per megawatt-hour, while current TTF contract prices are at €72.90/MWh and the November-March strip is at €70.90/MWh. This gap indicates the market is assigning a significant premium to the risks surrounding supply disruptions and weather conditions.

European gas prices have surged and remained volatile as traders attempt to assess two uncertain variables simultaneously: when normal transit through the Strait of Hormuz will resume and how harsh the upcoming winter will be. This uncertainty is especially crucial given the low European gas storage levels heading into winter, which makes the market more vulnerable to any disruption in liquefied natural gas supplies.

The rise in Asian LNG prices further underscores the connection between these two markets through the global LNG trade.

Citigroup's analysis factored in various combinations of Hormuz reopening timelines and winter weather scenarios, ultimately calculating a probability-weighted average price. Despite current market positioning not appearing as stretched as it was during March 2026 or in 2024, prices are still considerably higher, suggesting that the rally is not solely driven by traders already positioned in the market. Fundamental buyers and investment funds likely play a more significant role in driving prices.

According to Citigroup's analysis of the past three years, investment funds are currently a primary factor in European gas prices, particularly when compared to the period following the initial Russia-Ukraine war shock. This makes the market susceptible to rapid reversals if supply fears diminish. Citi has revised its gas-price forecasts, predicting €60/MWh for the third quarter of 2026, €56/MWh for the fourth quarter, and €41/MWh for 2027.

The bank acknowledges that prices could experience significant increases under adverse scenarios, but the main question is whether those risks are already fully reflected in current prices.