Natural gas futures steady as European benchmark gains 30% in July

U.S. natural gas futures inched higher in early trading Tuesday, holding steady as European benchmark prices capped their strongest monthly gain since March on Middle East conflict risks to LNG supply.

"Until safe passage through the Strait of Hormuz is no longer a gamble, the risk premium in energy is not going anywhere," said Tim Waterer, chief market analyst at KCM Trade. "Hope for diplomacy is welcome, but the market is pricing the reality of ongoing strikes."

The Dutch front-month TTF contract, Europe's principal gas benchmark, traded near €57.60 per megawatt-hour, having gained more than 30 percent in July — its first monthly increase in four months. Britain's comparable contract stood near 141 pence per therm. EU gas storage ended July at roughly 55 percent capacity, below the five-year average and the level recorded at the same point last year.

The narrowing window before the November 1 winter heating season leaves European utilities racing to rebuild reserves. Any prolonged disruption to Qatari LNG shipments through the Strait of Hormuz — which normally handles roughly one-fifth of global oil and liquefied natural gas flows — would force European buyers to compete more aggressively with Asian markets for flexible cargoes, keeping prices elevated into winter.

Hormuz Conflict Keeps Energy Markets on Edge

The rally in European gas prices was driven primarily by the expanding military confrontation involving the U.S. and Iran. The U.S. military said it had hit dozens of Islamic Revolutionary Guard Corps targets across Iran, including command centers and drone facilities, following Tehran's launch of ballistic missiles at U.S. forces in the Middle East. The operation began at 0000 GMT and concluded at 0200 GMT Thursday, according to U.S. Central Command.

Qatar, one of Europe's important LNG suppliers, depends on the Strait of Hormuz to move exports from the Persian Gulf. Shipping data from Kpler and LSEG showed the Al Areesh tanker, which loaded cargo at Qatar's Ras Laffan terminal between July 4 and July 6, successfully exited the strait overnight on July 29 after receiving permission from Iranian authorities.

The conflict has also affected traffic through the Bab el-Mandeb Strait, creating another potential bottleneck. Iran-aligned Houthi militants in Yemen declared a naval blockade on Saudi Arabia last week, threatening the Red Sea route for its oil exports — an alternative to the largely blockaded Strait of Hormuz.

Storage Gap Widens Before Winter

Hot weather across central and southern Europe has raised electricity demand for air conditioning, redirecting gas into power generation and slowing injections into underground storage sites. If storage remains below normal heading into autumn, households and energy-intensive industries could face sustained price pressure.

Oil markets have mirrored the gas price dynamics. Brent crude settled down $1.71, or 1.88 percent, at $89.03 a barrel Thursday after a volatile session, while U.S. West Texas Intermediate settled down 87 cents, or 1.03 percent, at $83.59. Earlier in the session, Brent touched a high of $93.31 after Washington and Tehran traded strikes on each other's military targets again.

Saudi Arabia has proposed leading a multinational maritime defense coalition to boost cooperation in the Bab el-Mandeb Strait, the Red Sea, and the Gulf of Aden. The Saudi defense ministry said 14 states including Turkey, Pakistan, Egypt, Sudan, and Djibouti issued a joint statement supporting the proposal.

Iran and Oman continued talks on the management of the Strait of Hormuz, according to the Iranian Labour News Agency. On Wednesday, a senior Iranian official said Iran had ruled out Oman's proposal for regional joint management of the waterway. "The fact that Oman is in talks with Iran could suggest that progress is being made on re-opening the Strait of Hormuz," said Hamad Hussain, senior climate and commodities economist at Capital Economics.

The last time European gas prices moved this sharply was in March, when the initial escalation of the conflict triggered a similar supply-driven rally. That surge faded over the following three months as markets adjusted to the new reality — but the current storage deficit and the approaching winter heating season leave less room for complacency this time.

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