European Gas Hits 3-Year High as Storage Falls to 13-Year Low

European natural gas prices rose to their highest level in more than three years, as fresh US strikes on Iran heightened fears of sustained energy supply disruptions from the Persian Gulf.

Dutch front-month futures, the region's benchmark, jumped to 73.85 euros per megawatt-hour during early European trading. The contract has gained roughly 25% over the past month. It stood at 72.2 euros at press time.

Storage Deficit Raises Europe's Vulnerability

According to the Wall Street Journal, the front-month contract had not reached this level since the end of 2022. The rally points to a supply problem that existed before this week's escalation.

EU gas reserves were 63% full in the last week of August, well below the 80% average for late August in recent years.

Operators typically refill storage over the summer when demand and prices are lower. Gas analyst Greg Molnar said that continued injection at the current pace could leave EU storage at just 72 bcm.

That would place inventories 20%, or 19 bcm, below the five-year average and would mark the lowest storage level since 2013.

"Low storage levels are naturally increasing the risk of heightened winter price volatility," he said.

Higher Energy Costs Reach Consumers

The impact has already appeared in eurozone inflation data. Annual inflation rose to 3.3% in August, up from 2.9% in July. Energy inflation accelerated to 14.3% and drove the increase, while core inflation eased to 2.4%.

Escalation around the Strait of Hormuz has also dimmed prospects for a recovery in liquefied natural gas (LNG) exports from the region. Roughly 20% of global LNG shipments cross the waterway.

Analysts at ING said Europe currently outbids Asia for cargoes once shipping costs are counted. However, they expect competition between the two regions to intensify if Qatari volumes remain absent through year-end.

Goldman Sachs analysts said the benchmark may need to move above 100 euros per megawatt-hour if Middle East exports normalize only gradually through 2027. Meanwhile, Morningstar analyst Tancrede Fulop told CNBC that a cold winter could drive prices into the 90-120 euro range.

The squeeze is spilling into risk assets. Asian equities slid after the strikes on Iran, while Bitcoin also reacted to the same escalation.