European gas prices fall to lowest in week while Brent Crude also drops

European gas prices have been volatile in reaction to the Freeport outage, highlighting Europe’s increased dependence on liquefied natural gas imports

Mon, 22 Jul, 2024 - 17:16

European natural gas prices declined to the lowest level in a week, as supply risks abated with the partial restart of the Freeport LNG plant in Texas.

Benchmark futures fell as much as 3.2% on Monday after loadings resumed at the facility over the weekend.

Freeport LNG, which is one of the largest US suppliers, had suspended exports as Hurricane Beryl made landfall in early July and disrupted power supplies across the state.

Still, the plant is ramping up production slowly and multiple scheduled shipments have been cancelled.

European gas prices have been volatile in reaction to the Freeport outage, highlighting Europe’s increased dependence on liquefied natural gas imports.

“The outage clearly shows how prone the TTF market remains to upside risks, based on the ‘fear’ of not having enough supply,” said Florence Schmit, an energy strategist at Rabobank.

“This fear is still ingrained in the market even though, at present, there is enough supply to go by.”

Oil prices fell on Monday after Joe Biden announced he would not seek a second term as US president.

For now, storage sites across the continent are filling up, with inventories almost 83% full.

Dutch front-month futures, Europe’s gas benchmark, slid 2.9% to €31.23 a megawatt-hour in early trading.

Meanwhile, oil prices fell on Monday after Joe Biden announced he would not seek a second term as US president, while investors considered the possibility of US interest rate cuts, potentially as soon as September.

Brent crude futures fell 68 cents, or 0.82%, to $81.95 a barrel, and has remained relatively steady in the past month — hovering between $82 and $88 a barrel.

The US Federal Reserve is due to review policy next on July 30-31, when investors expect it to maintain rates, though there have been signs of a possible cut in September.

"The risk of delaying rate cuts is tied to a contracting economy, which could potentially lead to a recession, " said Razan Hilal, a market analyst at Forex.com.

This scenario signals bearish implications for oil demand and prices

Brent crude futures hovered close to its lowest level since mid-June, following more than a 3% drop in the previous session.

Renewed hopes for a ceasefire in Gaza has also weighed down Brent Crude prices, as US secretary of state Antony Blinken suggested that a long-awaited truce between Israel and Hamas was close at hand.

Brent crude oil is expected to trade at $86.91 by the end of this quarter, according to Trading Economics global macro models and analysts expectations.