The US signals easing tensions, European natural gas prices spike then fall back

After Israel and the United States attempted to alleviate concerns about further attacks on Persian Gulf energy facilities, European natural gas prices fell. Benchmark futures fell 3% on Friday. As of the time of writing, the Dutch near-month futures (European natural gas benchmark) fell 2.2% to 60.50 euros per megawatt-hour. Nevertheless, following a significant increase in contracts the day before, its weekly increase is still expected to reach about 20%. Prices have doubled since the outbreak of the war. After gas fields were attacked, Iran retaliated against oil and gas assets across the Middle East. Previously, the Qatari Ras Laffan Industrial City was hit by missile attacks, damaging two liquefied natural gas production lines. These two production lines have a combined annual capacity of 12.8 million tons, accounting for about 17% of Qatar's liquefied natural gas exports. Repairs could take up to five years to complete. This has pushed up oil prices and drawn condemnation from US President Trump, with Israel stating they will no longer target energy infrastructure. Although gas transport from the liquefied natural gas plant has been suspended earlier this month due to the war, the latest damage could lead to sustained high natural gas prices in Europe and Asia for a longer period. Analysts at Morgan Stanley estimate a 4% shortfall in natural gas supply this year, and stated that if the two damaged production lines remain out of operation for a long period, it could affect the forecasted oversupply of natural gas in 2027-2028. In Europe, these attacks have raised concerns among political figures, with countries preparing for potential long-term energy price shocks. Traders across Europe are expecting market volatility in the summer as they work to replenish stocks before the next winter arrives. While most of the natural gas passing through the Strait of Hormuz usually flows to Asia, the actual closure of the waterway could have an impact on Europe, as both regions compete for increasingly limited global liquefied natural gas supply. At the same time, temperatures in most of northwestern Europe are expected to drop later this month. This could drive up demand for the fuel. Concerns about long-term supply disruptions are also reflected in the options market. Implied volatility (an indicator based on the cost of underlying option contracts) has more than doubled since the outbreak of the war, highlighting the risks that remain in the market in the coming months.