The situation in the Persian Gulf remains tense, but market reactions have diverged significantly. While oil continues to reflect a substantial geopolitical premium, natural gas prices have returned to normal levels due to seasonal and regional factors. In the U.S., high production and weaker demand have pushed prices down, while in Europe, warmer weather, lower LNG imports from Asia, and the contribution of renewables have eased pressure on prices.
In this context, the question is whether we are witnessing a mere temporary decoupling between oil and natural gas or a more profound divergence in the dynamics of these markets.
Energynomics spoke with Dr. Aura Săbăduș, Energy and cross-commodity writer
How do you explain this difference in market reaction between the oil and natural gas markets, given that crude oil continues to command a substantial geopolitical premium, while natural gas – both in the U.S. and in Europe – appears to be influenced primarily by seasonal factors and regional supply-demand balances?
The answer lies right in the question: natural gas prices are sensitive to seasonal factors. Demand is much lower during this period, and production of renewable energy (hydro/wind/solar) as well as nuclear power is stable. Furthermore, due to the recent rise in natural gas prices, many operators have switched to coal-fired power generation. In addition, there are other factors influencing prices. First, only a few European countries (Poland, Italy, Spain, the United Kingdom) have long-term contracts with Qatar. The cargoes that were supposed to be delivered in March had already departed in February and have since been delivered.
In contrast, Asian countries (especially India, Bangladesh, and Thailand) have been severely affected by the Gulf blockade. These countries rely heavily on oil and petroleum products from Iran, the UAE, or Saudi Arabia, and the blockade has led to a dramatic reduction in shipments to these countries.
To what extent do seasonal factors limit the impact of geopolitical tensions on natural gas prices?
As mentioned above, demand (especially residential demand) is very low during the spring in both the U.S. and Europe. However, everything depends on how temperatures develop in the immediate future. In the event of early heat waves in the U.S. or Asia, imbalances could arise that would influence European prices. Currently, China has begun increasing imports from Russia (via Power of Siberia), while Japan and South Korea have reduced consumption. Taiwan and Thailand continue to purchase LNG from the US and Australia.
How well is Europe protected against a more severe shock in the gas market?
Europe continues to receive LNG from the U.S. and smaller producers (mainly in Africa), as well as gas from Norway. Of course, maintenance work in Norway is also taking place during this period, and delays or unplanned repairs could also cause problems.
How much do renewables and nuclear energy contribute to keeping gas prices in check in Europe?
I would say their role is critical. Photovoltaic installations have skyrocketed in recent years, and from what I understand, investors are now focusing on batteries. The EU will increasingly encourage the production of renewable energy and, above all, the integration of electricity grids.
Equally important is the role of nuclear power plants and nuclear power generation. In France, the outlook for the coming months looks promising, in the sense that there are no indications that the plants will need to be shut down, as happened in the summer of 2022.
How do you see this decoupling between oil and gas evolving over the next 6-12 months?
The biggest risk for the coming period relates to injections. Currently, the summer-winter price spread is inverted. Normally, the winter price should be higher than the summer price to incentivize companies to inject now and withdraw in the winter. With this inverted spread (in backwardation), there are no “natural” signals to motivate traders to start injecting now. If the spread remains inverted during the summer as well, then governments or the EU could introduce mandatory injection targets, which would cause panic in the market and send prices skyrocketing.
In conclusion, although prices are moderate now, this risk exists for the summer (especially toward the end of summer) if the price spread remains inverted.
