Gas price to highest point in 3 years, Europe fears expensive winter

The European gas price has risen to the highest level in more than three years. New US attacks on Iran are creating uncertainty about the energy supply from the Persian Gulf.

At the same time, European gas supplies are remarkably low. As a result, there is a growing fear that households and companies will again have to deal with high energy prices next winter.

Moreover, the unrest does not only affect the energy market. Rising energy prices are fueling inflation in the eurozone, while tensions in the Middle East are also putting pressure on equities and Bitcoin (BTC).

Dutch gas futures for delivery in the coming month rose to 73.85 euros per megawatt hour during early European trade. As a result, the European gas price reached the highest level in more than three years.

Later, the price dropped slightly to about 72.20 euros per megawatt hour. Nevertheless, the price of gas is still about 25 percent higher this month.

The direct reason for the increase is new US attacks on Iran. Traders fear that the turmoil in the Persian Gulf could last longer and eventually have consequences for the global energy supply.

For Europe, this uncertainty comes at a vulnerable time. Gas supplies in the European Union were about 63 percent full in the last week of August. The average in recent years is around 80 percent.

According to energy analyst Greg Molnar, Europe can reach about 72 billion cubic meters of gas at the current rate of replenishment. That would be about twenty percent below the five-year average and the lowest level since 2013.

“Low storage levels obviously increase the risk of stronger price fluctuations during the winter,” says Molnar.

The higher gas price is also a problem for inflation in Europe. Eurozone inflation rose to 3.3 percent year-on-year in August. In July, this was still 2.9 percent.

Energy in particular became considerably more expensive. Energy inflation was 14.3 percent. Core inflation, which excludes energy and food, among other things, remained much lower at 2.4 percent.

This difference shows how strongly energy prices currently affect the general price level. If gas remains expensive for a long time, this can further increase the pressure on households and companies.

A major uncertainty is the Strait of Hormuz. Approximately twenty percent of all global shipments of liquefied natural gas, also known as LNG, pass through this important shipping route.

A further escalation around Iran could therefore have major consequences for the international gas market.

Analysts at ing state that Europe is currently paying enough to pull LNG cargoes out of Asia. However, according to the bank, this competition could increase considerably if gas from Qatar is largely withdrawn from the market by the end of the year.

The situation can become particularly problematic if the disruption of the energy supply lasts longer and Europe is faced with a cold winter at the same time.

Goldman Sachs warns that the European reference price may need to rise above 100 euros per megawatt hour if energy exports from the Middle East only gradually normalise towards 2027.

Tancrede Fulop of Morningstar also sees a significant upside risk. He told CNBC that a cold winter can push the European gas price to a bandwidth of 90 to 120 euros per megawatt hour.

As a result, the energy market can once again become an important source of uncertainty for the European economy. Higher energy prices can keep inflation high for longer and at the same time put pressure on purchasing power and corporate profits.

Geopolitical tensions are now also visible in other financial markets. Asian stocks fell after the new attacks and the Bitcoin price also reacted to the increased uncertainty. As a result, investors are not only keeping a close eye on Iran and the Strait of Hormuz, but also on how quickly Europe is able to replenish its gas reserves for the winter.