European gas futures jump 12% on Hormuz reopening doubts

European benchmark gas futures surged as much as 12% to 62 euros a megawatt-hour Monday as Iran signaled a "very close" agreement with Oman on Hormuz Strait navigation would not guarantee immediate shipping resumption.

"Europe is well behind in refilling its storage facilities before the heating season, with levels sitting at 58 percent compared with normal seasonal levels of 70 percent," ANZ analysts said.

European gas storage stands at roughly 59 percent, near the lowest level for this time of year since 2009, versus a five-year average of about 76 percent, according to Bloomberg data. The winter heating season begins in less than three months. US natural gas futures also rose more than 5 percent Monday, though driven by weather forecast changes and short covering rather than Hormuz risk. Brent crude and WTI both gained about 4 percent as Iran pressed for compensation in the Oman-mediated talks.

The stakes are rising for Europe's energy security. If Middle East LNG exports remain constrained, European buyers must compete with Asian importers for limited spot cargoes, potentially keeping prices elevated through winter. Citi strategists including Maggie Xueting Lin project European storage could reach about 74 percent by end-October if Middle East LNG exports resume from mid-August — but any further delay narrows that window.

Storage Gap Widens as Winter Approaches

The market's reaction reflects a fundamental shift in how traders are pricing Hormuz risk. Earlier optimism that an Iran-Oman agreement would quickly restore LNG flows has given way to a more cautious assessment: even if a deal is signed, shipping companies need time to confirm route safety, and LNG producers and traders must reschedule cargoes and reroute vessels.

Iran said over the weekend that an agreement was "very close" but also signaled that reaching a deal would not automatically mean the strait reopens to normal traffic. This has forced traders to reprice the timeline for supply restoration, with the TTF contract pulling back from its intraday high to around 58.80 euros a megawatt-hour in afternoon trading, still up 5.7 percent on the day.

The storage deficit compounds the problem. At roughly 59 percent, European inventories are far below the seasonal norm, and the gap is widening as the region enters its critical refill window. Under normal conditions, Europe builds gas stocks through spring and summer to prepare for winter demand peaks. This year, Middle East supply disruption has severely hampered that process.

LNG Competition Intensifies Between Europe and Asia

The risk extends beyond Europe's own storage shortfall. If Middle East LNG exports remain constrained, European buyers will compete directly with Asian importers for available spot cargoes, particularly as Asian buyers also prepare for winter demand.

Citi's projection of 74 percent storage by end-October assumes Middle East LNG exports resume from mid-August. Any delay in that timeline would push European storage levels lower, potentially triggering a scramble for spot LNG that would lift prices across both regions.

Additional supply risks compound the picture. Norway, Europe's largest pipeline gas supplier, faces potential sustained production cuts at the Ormen Lange field. Any disruption to Norwegian pipeline flows would further tighten European supply at a time when inventories are already below historical norms.

The divergence between European and US gas markets highlights the regional nature of the current crisis. While European prices are driven by Hormuz risk, LNG supply and winter refill pressure, US futures rose on weather forecast changes and short covering — with fund managers holding some of the most bearish positioning since 2020 before the weather data shifted.

The last time European storage sat this low relative to seasonal norms was during the 2022 energy crisis, when TTF prices spiked to record levels above 300 euros a megawatt-hour. While current prices remain far below that extreme, the market's sensitivity to supply disruption has clearly intensified.

If Hormuz remains constrained through the autumn, the combination of low storage, potential Norwegian supply cuts and competing Asian demand could keep European gas prices elevated well into the heating season. The market is now trading not just on when the strait reopens, but on how long it takes for supply chains to normalize afterward.

This article is for informational purposes only and does not constitute investment advice.