European gas hits 2022 peak as Middle East conflict and thin winter stores lift prices

Wholesale gas prices in Europe reached €97 per megawatt-hour on Monday, the highest level recorded since 2022. Traders cited falling temperatures across the continent and increased demand for heating as primary drivers of the spike.

The price surge follows a period of heightened uncertainty regarding winter supplies. In the United Kingdom, the month-ahead gas contract climbed 4% to 240p per therm. This marks the highest level for British futures since December 2022, a period when markets were reacting to Russia's full-scale invasion of Ukraine.

Market volatility was further fueled by reports that the US and Israel have planned new strikes against Iran following the US midterm elections. These geopolitical concerns pushed oil prices to $117 per barrel on Friday. Although the Brent crude benchmark fell by roughly 2% on Monday, it remains above $114 per barrel.

Europe enters the winter season with gas storage levels at their lowest point in over a decade. Current storage stands at approximately 75% capacity, down from a seasonal average of about 80%. A slowdown in exports from Qatar and elevated summer consumption for cooling purposes contributed to the decline in reserves.

British energy regulators indicated that the UK faces some of the highest energy costs in Europe this winter due to its reliance on imports. The country holds some of the smallest gas reserves on the continent, a legacy of decades of dependence on North Sea production. The Office for National Statistics reported that the UK spent a record £4 billion on power imports in the year ending in August. Half of that expenditure went toward electricity purchased from France.

In the same period, the UK made near-record payments to start up gas plants. Wind and solar farms were also compensated to switch off due to grid bottlenecks. As these costs accumulate, British households are preparing for increased bills. Energy prices are projected to rise 16% in January, which would bring the typical annual dual fuel bill to the equivalent of about £2,000.

Equity markets showed slight gains on Monday as the softer oil price provided some relief. The Stoxx Europe 600 index, which tracks the largest companies in Europe, rose 0.3% in early trading. The UK's FTSE 100 index increased by 0.4%.