Wholesale natural gas prices in Europe rose to their highest level in more than a month on Tuesday, amid escalating military operations in the Middle East and the imposition of restrictive new US shipping tariffs, sparking sharp concerns about the availability of liquefied natural gas (LNG) globally.
The next month's gas futures contract on the Dutch trading platform TTF – the main European benchmark – broke through previous ranges, rising 3.3% to €56.00 per megawatt-hour. This coincided with a similar rise in the UK wholesale gas market, which climbed 3.5% to 128.50 pence per British thermal unit (MMBtu).
This upward momentum came in the wake of a sharp rise in benchmark crude oil prices, which reached their highest levels in a month following structural shocks to global shipping lines.
Transit fees are disrupting markets
Energy trading firms took a defensive stance after US President Donald Trump announced the reimposition of a naval blockade targeting Iranian shipping lanes.
Most importantly for gas markets, the US administration announced a 20% shipping charge on all commercial vessels passing through the Strait of Hormuz – a vital geographic chokepoint through which nearly 20% of the world’s liquefied natural gas trade passes.
As regional tensions escalate into a third night of strikes, utilities are accelerating their calculations for the likelihood of prolonged disruptions or delays in rerouting imports of super-cooled liquefied natural gas from the Middle East.
This logistical pressure is compounded by a hawkish macroeconomic outlook emanating from Washington. Federal Reserve member Christopher Waller indicated that persistent inflationary pressures may warrant an interest rate hike in the near term.
The prolonged rise in global interest rates, coupled with today's anticipated US Consumer Price Index (CPI) data, has boosted the value of the US dollar.
This pressure on the currency increases the direct cost of dollar-denominated liquefied natural gas contracts for European buyers, accelerating the rise in domestic utility prices. Furthermore, the two-day testimony of incoming Federal Reserve Chairman Kevin Warsh before Congress is expected to reinforce tighter global financial conditions.
