European benchmark natural gas prices fell to their lowest in a month amid hopes Vladimir Putin was losing leverage in his attempts to cause economic pain to the continent by restricting supplies.
The ICE Dutch TTF Gas Future for October retreated 8% to 190.5 euros per megawatt hour on Monday, compared to around 350 euros per MWh just a few weeks ago.
The ICE U.K. Natural Gas Futures
GWM00,
for the same month lost 4% to 363 pence per therm, 48% lower than the high touched on August 26th.
The contracts had spiked to record levels last month on fears, subsequently realized, that Moscow would completely stop the flow of gas through the Nord Stream 1 pipeline to punish European economies for their support of Ukraine following Russia’s invasion.
However, prices have dropped back following news that European Union gas storage levels have already reached 83% of their capacity, notably ahead of the 80% target set for the end of October, raising hopes that the continent will have enough supplies for the winter.
Strategists at Deutsche Bank noted that the U.K.’s decision to spend government money to protect households from surging power prices, and similar actions across Europe, had damped the impact of the Putin energy crisis and helped force prices lower.
“[it] was probably from the tough talk from energy and fiscal ministers, but there was probably also an element of taking out risk premium,” said Deutsche.
Additional downside price pressure came after the EU said at the end of last week that it would seek to apply a price cap on all gas imports, though they have yet to deliver details.
“While the announcement didn’t specify the levels of caps we estimate that imposing a power price cap of €75/MWh…and a gas price cap of €180/MWh,” said Alberto Gandolfi, utilities equity analyst at Goldman Sachs.
Finally, news over the weekend that Ukrainian forces had routed Russian troops in some areas of the embattled country raised hopes among some observers that an end to the ground, and thus energy war, may be more likely.
However Deutsche warned: “Although this will be greeted well by markets, the surprise success does increase the chances of a more aggressive response from Russia.”
