European gas and oil prices pulled back on profit-taking after a sharp rally, but the retreat masks a tightening supply picture: a Persian Gulf standoff is stranding LNG cargoes just as Europe's storage sits at a record August low, and drought has forced nuclear reactors offline across the Continent.
Energy traders banked gains Thursday, easing prices after a fast run-up. Dutch front-month gas futures fell 3.1% to near 59.18 euros per megawatt-hour, retreating from multi-week highs, while British wholesale contracts dropped 2.74% to around 145.69 pence per therm, tracking declines across continental hubs. Crude oil prices also eased modestly over the same stretch.
Traders pointed to an as-expected U.S. inflation reading, which dampened expectations for near-term Federal Reserve rate hikes, as the trigger to lock in profits after the rally. But the pullback does not resolve the supply strain building underneath it.
Hormuz standoff keeps a risk premium on the table
European Union gas storage sites are filled to just 59.32% of capacity, a record low for mid-August, according to data from Gas Infrastructure Europe. Diplomatic talks between Washington and Tehran remain at an impasse over transit rights through the Strait of Hormuz, stranding Qatar-origin LNG cargoes and pushing European buyers into bidding wars with Asian importers for replacement shipments.
Summer heatwaves across Southern and Central Europe have forced utilities to burn natural gas for air-conditioning demand rather than inject it into storage caverns. Until Gulf LNG flows normalize and European storage deficits narrow, trading desks expect gas contracts to carry a heavy geopolitical risk premium.
Drought pushes nuclear plants offline
Europe's heat and drought are hitting the power grid from another angle. Romania's state-owned Nuclearelectrica began disconnecting its sole operating reactor on Thursday because of low water levels on the Danube, despite dredging the river channel and sinking rock-filled barges to keep cooling systems running. The plant typically supplies about a fifth of the country's electricity.
France's EDF has reduced output at multiple reactors due to environmental issues and shut three reactors at its Gravelines plant after a massive influx of jellyfish triggered automatic preventative measures — the second successive year that a jellyfish swarm has shuttered reactors at the facility. Hungary fared better: rainfall lifted Danube levels enough for its Paks plant to restart another turbine, with two of its eight now producing electricity again.
Triodos estimates heat-related disruptions could cost the EU 180 billion euros ($207.7 billion), roughly 1% of GDP. Gas storage and nuclear generation are both squeezed at once, even as Thursday's price dip suggests otherwise.
Sources: Commodities & Futures News, CNBC
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