European gas prices rose on Friday, with the TTF index climbing over 11% to its highest level since June. The market ended at EUR 36.88/MWh due to low storage and forecasts of colder weather. Currently, EU gas storage is at 50% capacity, much lower than the five-year average of 65%. Predictions for colder weather at the end of January are pushing prices higher. A rally for short-covering was expected because funds held record short positions in TTF before winter. This surge in European prices has caused gas rates to be higher than Asian LNG. This price increase might attract more LNG supply to Europe, helping to ease worries about the tightening market. Given last year’s price rally, the current market conditions need careful monitoring. That surge pushed TTF prices over EUR 36/MWh, driven by low storage levels and the anticipated short-covering rally. Now, with colder weather expected at the end of January, prices have continued to rise, recently exceeding EUR 42/MWh. The storage situation remains a major concern and a key factor driving prices up. EU gas storage is only 50% full as we enter winter, and new data from Gas Infrastructure Europe shows it has dropped to about 42%, well below the five-year average for this time of year. This tight situation means that any supply disruptions or cold weather could sharply increase prices in the coming weeks. Traders should prepare for continued high volatility, similar to the large price swings seen in 2022. Buying near-term call options could provide exposure to potential price spikes from cold weather. Alternatively, strategies focused on volatility, such as straddles, might effectively capture big price moves in either direction. We are now beginning to see the expected increase in Liquefied Natural Gas imports, attracted by Europe’s higher prices compared to Asian markets. Early shipping data for the first two weeks of January 2026 shows LNG imports rising by almost 15% compared to last year. This new supply may limit how high prices can rise, but its impact on storage levels will take time. This situation creates opportunities in the forward curve, which is currently in steep backwardation. Traders may want to sell front-month contracts for February or March, which are inflated by the current cold weather, while buying contracts for summer delivery. This calendar spread strategy bets that the supply crunch will ease as we move towards spring, narrowing the price difference between winter and summer gas.

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