European gas eases from 2023 peaks; shipping risks, low storage anchor prices

European and British wholesale natural gas prices dipped slightly on Tuesday, after reaching record highs in the previous trading session. The Dutch TTF benchmark contract fell 0.7% to around 82.80 euros per MWh, edging closer to Monday's peak of 83.40 euros. In Britain, the NBP wholesale gas contract also declined 0.7% to 200.10 pence per therm, staying above the 200-pence level, which it had surpassed in recent trading.

Low storage reserves in Europe continue to exert downward pressure on the market. According to Gas Infrastructure Europe, storage facilities are currently at about 68% capacity, trailing the five-year seasonal average. This scarcity of reserves is linked to warnings from major global energy purchasers, such as JERA CEO Yukio Kani.

He cautioned on Monday that Europe's diminished reserves leave power grids highly vulnerable to potential shipping interruptions around the Strait of Hormuz, coupled with growing global competition for spot LNG deliveries.

Meanwhile, the Red Sea situation and the surge in crude oil prices have further complicated the energy market dynamics. Brent crude oil prices surged another 1.2% on Tuesday, breaching the $113 mark after Saudi Arabia accused Iran-backed entities of targeting its East-West pipeline, which could potentially disrupt up to 4% of global crude supplies.

The Red Sea attacks and the subsequent restrictions on tanker transit have delayed the normalization of shipping, impacting Qatar's LNG exports through the Persian Gulf. A critical diplomatic attempt to resolve the issue in Oman was unexpectedly delayed, further exacerbating the crisis.

The European Central Bank's recent quarter-point rate hike to 2.50% was followed by the U.S. Federal Reserve's initiation of a two-day FOMC meeting later on Tuesday. Market expectations are that central banks across Europe and the United States will likely persist with tight monetary policies well into 2027 to curb secondary price surges driven by escalating energy input costs.