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EMEA Natural Gas Update: Futures Pare Losses on Hormuz Talks

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European natural gas futures pared losses in after-hours trading on Tuesday after Qatar said talks between Iran and Oman on managing the Strait of Hormuz had reached an advanced stage, raising hopes of a diplomatic breakthrough over the key energy shipping route.

Front-month Dutch TTF futures fell 1.411% to 59.94 euros ($69.18) per megawatt-hour, while UK NBP futures dropped 1.590% to 147.340 British pence ($1.99) per therm.

Prices had rallied on Monday as diplomatic efforts to reopen the Strait of Hormuz showed little progress, heightening concerns over potential disruptions to energy supplies.

But signs improved on Tuesday after Pakistan's Defense Minister Khawaja Asif said the US and Iran were close to reaching "some sort" of deal. Qatar, which has been involved in mediation efforts, separately said talks on managing the Strait of Hormuz were at an advanced stage, despite reports of fresh attacks on shipping in regional waters, news outlets reported.

European gas prices eased by as much as 4% during Tuesday's session before paring some of the decline as traders awaited formal announcements confirming progress in the talks.

The market remains supported by concerns over Europe's gas inventories ahead of winter. Storage facilities were 59.12% full, compared with 71.57% at the same point last year, according to Gas Infrastructure Europe. Inventories were also well below the five-year average of 75.9% for this period, according to the Swiss Federal Office of Energy.

Timera Energy said Europe's efforts to rebuild inventories ahead of winter were being complicated by weak price incentives. When winter gas prices trade below summer prices, the market provides little incentive to inject gas into storage, creating a significant challenge for Europe to meet its 80% storage target.

Winter futures prices past October assume more progress in the Middle East, Timera said.

Timera's modeling indicates European storage could reach only around 70%-75% of capacity by the start of winter, leaving the market vulnerable to renewed price volatility if supply risks intensify.

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