The price of European natural gas dropped significantly on Tuesday as tensions eased in the Middle East following the implementation of a ceasefire between Israel and Iran.
The benchmark TTF futures contract for European natural gas plummeted by more than 12 percent in the first minutes of trading. The contract for delivery in one month was trading at 35.40 Euros per megawatt-hour (41.06 dollars) on Tuesday morning, down from approximately 41 euros the previous day.
Return to Pre-Conflict Price Levels
With this significant downturn, gas prices have returned to roughly the same level seen at the start of the Israel-Iran conflict on June 13. In recent trading days, prices had been driven up primarily by concerns about a potential escalation of the war, including fears of a possible blockade of the Strait of Hormuz, a crucial global transport route.
Although the majority of gas passing through the Strait of Hormuz is delivered to Asian markets, any shortages or price increases in Asia would inevitably impact European gas trading. This is because both regions compete for a limited share of the global liquefied natural gas supply.
Market Focus Shifts to European Reserves
With growing hope for de-escalation in the Middle East, market observers believe traders will once again focus on replenishing European gas reserves. This process is expected to be supported by increasing deliveries from the United States.
The ceasefire comes amid other developments in the region, with France welcoming the agreement and urging immediate talks on nuclear and missile threats. Meanwhile, the International Atomic Energy Agency (IAEA) Chief Grossi has proposed a meeting with Iran's foreign minister amid ongoing nuclear concerns.
However, tensions remain as reports indicate Tehran may have violated the ceasefire with a ballistic missile launch, prompting calls from some lawmakers and defense officials for retaliation.
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