The situation in the Persian Gulf remains tense and unpredictable. Even so, commodity markets have calmed somewhat in recent days. The most visible easing can be seen in natural gas: in the United States, contracts have fallen below USD 2.60/MMBtu, their lowest level since late October 2024, amid very strong domestic production, weaker spring demand, steady storage injections and the fact that the US gas market remains relatively insulated from shocks in the Middle East. In Europe, gas remains sensitive to geopolitical developments because the continent still depends on LNG and must rebuild storage ahead of next winter; however, TTF prices have also moved lower, to around EUR 41/MWh, more than 20% below the level seen a month ago, helped by warmer weather and lower Asian LNG imports, which reduce competitive pressure on European buyers. By contrast, crude oil has retreated from recent highs but remains clearly above the levels seen before the current Gulf crisis, with Brent near USD 95/barrel, suggesting that oil still carries a meaningful geopolitical premium, even though markets are increasingly pricing in partial de-escalation rather than a major supply shock. In this context, are we looking at a temporary decoupling between oil and natural gas, or at a deeper shift in the logic governing these two markets?
Energynomics talked with Jozsef Balogh, an energy-market specialist from Hungary.
How do you explain the current divergence between oil and natural gas, given that crude oil still carries a significant geopolitical premium, while natural gas – both in the US and in Europe – appears to be driven more by seasonal factors and regional market balances?
Once upon a time, when Galicia (Austro-Hungarian Empire) was the third biggest oil producer on Earth (around 1910), oil and natural gas were “connected” products. As per oil engineers, natural gas was nothing more, but a by-product of oil exploration; hence the international price of natural gas was indexed to oil. This all changed after liberalization: natural gas established itself as an independently traded, international product. The on-going double-war (Ukraine and Iran) is the ultimate test whether it was a good idea to de-couple natural gas prices from Brent. As the charts below (courtesy of T-Energy, Jozsef Turai) show, natural gas prices react very differently to oil prices today. There are fundamental reasons for this:
-
- The oil industry is full of so-called “buffer” capacities. Oil storages at the off-loading ports, oil tankers (cc, 8,000 in number), storage facilities at the receiving ports (like, ARA in Europe), plus actual gas pipelines (the longest on Earth being Druzhba) can and do hold crude oil in a way that is impossible to imagine in other sectors. The main point here is that oil industry can continue to operate without any input sources for weeks,
- Gas (unlike electricity) may also be stored, but the “buffer-capability” of natural gas systems are more limited, compared to oil. The biggest game changer in this sector was the arrival of LNG. The very first LNG tanker was built around fifty years ago, but the idea that vessels from far away ports may influence European gas prices did not register in the mind of European traders until after Russia started to play with gas pipeline flows as from 2006 (the biggest market squeeze was 2021 to 2022).
We gratefully acknowledge Jozsef Turai of T-Energy, Hungary, for kindly allowing us to use his slides.
To summarise, natural gas has grown up as a fully independent, internationally traded product. The traditional link between crude oil and natural gas pricing is gone. The charts above shows that oil prices reacted in a very different way to the Iranian war, than natural gas. Given basic fundamentals of the two sectors, this price divergence is justified and likely to stay with us.
In the case of natural gas, to what extent do seasonal factors soften the impact of Gulf tensions on prices? I am referring here, in the US, to strong domestic production, relatively comfortable storage levels and ongoing injections, while in Europe the relevant factors seem to be weaker spring demand, lower Asian competition for LNG cargoes and the contribution of renewables to power generation.
In the good old days, natural gas was a seasonal industry: gas was expensive in the Winter, and cheap in the Summer. Natural gas storage rules still echo this historical fact: physical injection periods usually start in April and end in October, while withdrawal season is from October until April. But our climate changed, plus the European traded gas market, as such, was born and this “Summer cheap – Winter expensive” logic went out of fashion. Some industry players (the first was ENRON in 2000) came up with the idea of virtual storage: you inject today, and may withdraw tomorrow in any calendar month. In summary, seasonal factors are fading in the natural gas industry. Just like in the case of any other commodity (from paper rolls to microwave ovens, to refer back to Dire Straits…), the only price driver is “supply-demand”. If and when gas-fired power stations are running (positive spark-spread) and fertilizer producers are at full load (in Spring), there is an above-average demand for gas: traded gas prices spike. If external events (like this Iran war) and/or EU/national regulators also add to this “uplift” (so-called mandatory storage obligations), European natural gas prices may (and tend to) show unnatural seasonal patterns: spot and Summer gas are more expensive, than Winter. This is exactly what happened this year in Europe. But traders price the above as short-term “anomalies”: here the main message is that soon everything will get back to normal. To conclude, seasonal factors are, of course, important (for example, natural gas is dominating domestic heating in Hungary), but such Summer – Winter factors are not the main reason why European traded natural gas market reacted relatively “softly” to the Golf tensions.
To what extent is the European gas market shielded by alternative supply routes, LNG flexibility and a lower direct exposure to the Gulf crisis than the oil market?
Europe is an amazing continent, with historical links to all the main LNG producing countries. The biggest LNG exporting country is the USA today. Here the EU-US cooperation might have its hysterical moments, but for the US the best credit and easiest to reach market is for sure Europe. Australia, Malaysia, Indonesia, etc. all have historical links to Europe, and this “old-boy-network” is especially important in this double-war environment, where (sadly) we are now. There are two touchy topics, here:
-
- One of the unfortunate (for Europe, but rather fortunate for the US) side-effects of the Iran war that LNG producers on the wrong side of the Strait of Hormuz will find that their products are devalued: like the sword of Damocles, the threat that Iran may close the straight or simply disturb shipping, will always be in the back of the mind of European LNG buyers. If you can choose between a US or (for example) Qatar LNG cargo, few will opt for the latter, unless there is a price discount,
- and the other, final point here, is Russia. A naive observer would expect to see the share of Russian LNG going down and down in the EU. In fact, as of Q1 2026, Russia exported by around 20% more LNG to Europe, than in the same period of 2025: as a main rule, every second Russian LNG cargo in the first part of 2026 ended up in an EU port. The EU would like to phase out Russian LNG, but the obvious question remains who will replace this market-share: the US is already a dominant supplier of LNG to Europe and the Gulf states are not really in a position to make a viable proposal to Europe, as of today (the so-called “Hormuz-syndrome”). Until there is a (draft) answer to the above Russian LNG questions, we do not know whether alternative LNG routes are a real alternative to Russian pipeline gas in Europe.
Looking specifically at Hungary, do you expect the political change following Péter Magyar’s victory to alter the country’s gas-market outlook in any meaningful way – whether in terms of sourcing strategy, regional positioning, infrastructure priorities or the broader balance between commercial pragmatism and geopolitical alignment?
The fundamental problem with Hungary is that this country had managed to survive (not prosper, but survive) without having a set of energy policy for sixteen years. The idea that Russian oil (Druzhba pipeline) and Russian gas (Turkish Stream) will always flow towards Hungary was NOT a coherent energy policy, but rather an illusion. Now the new government (once formed) will have to face reality. Both Russian oil and pipeline gas may be replaced in Hungary, if (and only if) there is a political will to do so. Hungary have a reasonably good oil pipeline network – Janaf (Adria) would be a meaningful alternative to Druzhba, provided that the new Hungarian government were to discontinue bad-mouthing the Croatian pipeline operator. Regarding the Turkish stream, this pipeline may carry non-Russian gas, and an interesting extra alternative will be the future of the Brotherhood pipeline (Russia-Ukraine to Central Europe), once the horrible Ukraine war is over. Maybe Ukraine will export gas to Hungary, maybe this pipeline will become the backbone of a new, non-Russian gas transit route to Central Europe. In short, the geographical location and pipeline network of Hungary are perfect; only energy policy, as such was missing in the past. The new government will have a once-in-a-lifetime opportunity to get this right.
Again with a focus on Hungary, do you see any realistic scope over the next 6-12 months for changes in market behavior, regulatory direction or regional cooperation that could affect gas trading conditions, price formation or security-of-supply thinking under the incoming political leadership?
Hungary could/should be a regional gas trading hub, very much like it is in the electricity sector (HUPX). But it is not. Why? The problem for not reaching its full potential as an actively traded market is regulation. Unfortunately enough, MEKH, the Hungarian regulator was the “parking space” for second/third rate candidates with stale political ambitions during the last sixteen years. The net result is rather bad: high regulatory supervisory fee (but no service), continuous data reporting (but no action ever taken, based on such reports) and one of the biggest VAT fraud in the recent history of Hungary. One of the first steps of the new Hungarian government should be to re-consider the future operation of MEKH. Very simple steps would make a big difference. For example, the licensing regime for whole-sale traders (i.e firms NOT supplying final customers) should be abolished. The supervisory fee, mentioned above, should be capped at a reasonable level.
Regarding regional cooperation, the picture looks better. With the exception of Slovenia, all neighboring countries are connected to the Hungarian MGP (virtual) trading point. The biggest opportunity would be to expand the capacity of the Romanian-Hungarian pipeline: once Romania will start Neptune Deep, this pipeline might be THE biggest input point for MGP. But the latest market rumors are that MEKH (see above) is NOT supporting any further investment into the Romanian-Hungarian gas interconnector. Wild imagination and good humor are required to accept the wisdom of this regulatory decision. One can only hope that the new government will reconsider the further expansion of Csanádpalota.
Jozsef Balogh is a senior business developer for Axpo Solutions, Switzerland, expert on Central European and Ukrainian electricity, gas and CO2 opportunities. He had been active in the Central European energy industry in various roles since 1992, and has been especially active in Ukraine and Hungary.
