European natural gas futures were down on Friday, pulling back from their one-month high, amid continuing US-Iran negotiations, despite the recent military exchanges.
The front-month Dutch TTF contract dropped 3.02% to 48.590 euros ($55.49) per megawatt hour, while the UK front-month NBP contract declined 3.17% to 117.000 British pence ($1.56) per therm. Dutch TTF and UK Gas were set to end the week up by 7.53% and 8.53%, respectively, according to TradingEconomics.
On Thursday, the US said that it would continue to hold "technical" talks with Iran and remained committed to resolving the conflict, despite renewed hostilities between the two sides along the Strait of Hormuz, according to a report by MS Now, citing a US official familiar with the matter.
Even with the two sides exchanging strikes, the strategically crucial Strait of Hormuz, which accounted for one-fifth of global LNG flows, witnessed a slowdown in traffic, according to media reports.
Meanwhile, Qatar, one of the world's largest LNG producers, paused its efforts to rapidly revive output after one of its tankers was struck earlier this week, according to a Bloomberg report, citing officials familiar with the matter.
QatarEnergy also said that operations at its Ras Laffan Facility will be kept at a minimum, and even vessels scheduled to dock at the plant will be reduced, amid safety concerns due to the renewed hostilities in the region.
Daniel Hynes, a senior commodity strategist at ANZ, warned that this could further tighten the global gas market, especially at a time when Europe needs to ramp up refilling of its depleted storage inventories.
Gas inventories across the continent stood at just 51.10% of capacity, compared to 61.59% during the corresponding period a year ago, according to Gas Infrastructure Europe.
They were also significantly below the five-year average for this period, at 66.3% of capacity, according to the Swiss Federal Office of Energy.
Otar Dgebuadze, Vice President at JPMorgan, warned that current European gas prices were insufficient to compete for cargoes and outbid Asian buyers.
"We expect prices to go higher for a simple reason that Europe will need to outbid Asia, and we don't see it happening at the 45 euros ($51.40) price level," he said during the bank's LNG Speakers Series webinar on Thursday.
All of this comes in the midst of another heatwave spreading through the Atlantic, with Portugal and Southern Spain expected to see temperatures soar past 43 degrees Celsius (109 degrees Fahrenheit), while France and the UK continue to swelter in record temperatures, as reported by.
These factors are leading to increased space cooling demand, making it harder for the region to find sufficient gas supplies to refill inventory levels.