European gas prices have dropped due to eased tensions in the Middle East. The TTF reference price is now just above this year’s low, sitting over EUR 32 per MWh. An increase in LNG imports has raised European gas storage levels to 65%, narrowing the usual gap by three percentage points, now under 9.5%. The IEA’s Gas Market Report shows a 6.5% rise in gas demand in Europe during the first half of the year. This uptick is mainly due to higher usage of gas-fired power plants and weaker demand in Asia. LNG supplies from the US and the Middle East continue to grow, expected to rise by 5.5% this year and 7% next year. With gas storage facilities filling up quickly and moderate import demand from Asia, price forecasts have been revised down to EUR 35 per MWh by the end of 2025. In the medium term, European gas prices may rebound as the economy grows and industrial gas demand returns, especially with a possible increase in Asian LNG demand. Given the current market environment, traders should expect to see continued low price volatility in the short term. European storage facilities are nearing 70% capacity, well ahead of the five-year average, with front-month TTF futures around €34 per MWh. This solid supply situation suggests that selling near-dated call options could be a smart move to collect premium. The strong flow of liquefied natural gas (LNG) is a key factor keeping prices stable. Data from May 2024 shows that the United States remains a primary supplier to Europe. With expectations of a 5.5% growth in global LNG supply this year, there seems to be little chance of a price spike in the near future. Therefore, any short-lived price increases should be viewed as chances to take short positions or sell futures contracts. However, the reported 6.5% rise in Europe’s gas demand for power generation indicates a solid underlying market. This demand growth is partly due to maintenance at French nuclear plants and lower-than-average wind generation. It serves as a reminder that the energy transition can lead to temporary reliance on fossil fuels. We must keep a close eye on power market dynamics, as unexpected outages could quickly use up the current gas surplus. Looking ahead, we should get ready for a possible change in sentiment as Asian demand strengthens. Recent customs data reveals that China’s LNG imports for the first four months of 2024 increased by over 20% year-on-year, indicating a strong economic recovery. This will lead to more competition for cargoes and supports the idea that European prices may rise in the medium term. The difference between a bearish current outlook and a potentially bullish future makes long-dated derivatives appealing. We see value in buying call options for the first quarter of 2025, positioning ourselves for a winter price increase driven by renewed industrial and Asian demand. This strategy allows us to participate in potential future gains while minimizing risk in the current, well-supplied market. Historically, the market situation now is very different from 2022, when storage levels were below 45% and prices were much higher. The current stability results from high inventories and steady LNG flows. We should take advantage of this stable period to set up positions that will benefit when market tightness returns.

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