U.S. Navy escorts keep Hormuz oil flowing, energy chief says

European natural gas prices may be overestimating the risks posed by the uncertain reopening of the Strait of Hormuz and the upcoming winter, according to Citigroup. The bank estimates a probability-weighted winter price for TTF at around €61 per megawatt-hour, much lower than the current market prices of €72.90/MWh for October 2026 and €70.90/MWh for the November-March strip.

This gap indicates that the market is applying a significant premium to supply disruption and weather risks. The volatility in European gas prices is due to traders attempting to gauge the timing of normal transit through the Strait of Hormuz and the severity of the coming winter. Low gas storage levels and rising Asian LNG prices have further contributed to the market's sensitivity to any disruptions.

Citigroup analyzed various scenarios involving Hormuz reopening timelines and winter weather conditions, arriving at a probability-weighted average price. While funds have added to the rally, Citigroup believes the current positioning is not as extreme as it was in March 2026 or 2024, despite prices being considerably higher. This suggests that the rally is not solely driven by existing market participants, implying that fundamental buyers and investment funds play a more substantial role.

Citigroup's analysis of the past three years shows that investment funds are now a significant factor in European gas prices, especially compared to the aftermath of the Russia-Ukraine war. This makes the market susceptible to sudden price reversals. To account for these risks, Citigroup has revised its gas-price forecasts, projecting €60/MWh for the third quarter of 2026, €56/MWh for the fourth quarter, and €41/MWh for 2027.

Although prices could spike higher under adverse scenarios, the bank emphasizes whether those risks are already fully reflected in current prices remains uncertain.