European natural gas futures fell on Wednesday as peace talks appeared to remain on track despite US strikes against Iran earlier this week in the midst of a ceasefire.
The front-month Dutch TTF contract was down 3.85% at 45.645 euros ($53.13) per megawatt hour, while the UK NBP front-month contract fell 3.75% to 111.000 British pence ($1.49) per therm.
On Tuesday, Iran's Foreign Ministry condemned the latest US strikes as "an act of bad faith" and "a definitive violation of the ceasefire," but it did not pull out of peace talks being mediated by Pakistan and Qatar.
However, one reason for the strikes was to intercept Iranian fast-attack attempting to lay mines under water, according to the US Central Command.
Iran's Revolutionary Guard said that a renewed war against the US was "unlikely," while continuing to warn against further aggression against the country, marking a major de-escalation in the conflict, according to a report by Al Jazeera.
Meanwhile, the Strait of Hormuz, through which one-fifth of global LNG flowed before the war, remained effectively closed for the 13th week running, with just two vessels transiting over the past 24 hours, according to the Hormuz Strait Monitor.
This has become a significant concern for European buyers, according to Daniel Hynes, a senior commodity strategist at ANZ, as the Strait's protracted closure forces them to compete with Asian buyers now also buying LNG on the spot market.
According to geopolitical strategist Cyril Widdershoven, the markets have yet again misread the latest developments in the Middle East, with the markets celebrating diplomacy, while completely ignoring the ground realities, which include "extensive mine-clearing operations" in the Hormuz.
Widdershoven noted that even if the Strait were to fully reopen, insurers would remain cautious, while ship owners price the geopolitical risk into every voyage, keeping prices elevated.
At the same time, European markets are grappling with low inventory levels, at just 38.52% of capacity, compared to 46.31% by this time last year, according to data from Gas Infrastructure Europe.
Inventories were also significantly below the five-year average for this period, at 52.5%, according to the Swiss Federal Office of Energy.
This comes at a critical juncture for the region, as it experiences "record-breaking heatwaves" with a heat dome developing over the continent, according to Severe-Weather EU.
That means gas-fired power stations will need more fuel to meet demand from air conditioner use.