Mideast tensions raise European gas prices

Dutch and British wholesale gas prices rose in early Friday trading after Israeli strikes on Iran sparked concerns that renewed tensions in the Middle East could affect gas supply.

The benchmark Dutch front-month contract at the TTF hub opened the session at €38.00 per megawatt hour (MWh), or $13/mmBtu, its highest level since early March, but by 08:12 GMT, it trimmed gains to €1.03 to trade at €37.41/MWh, according to LSEG data.

The price for August inched up €1.39 to €37.74/MWh.

The British contract for July was 2.54p higher at 88.14p per therm.

Israel said it targeted Iran's nuclear facilities, ballistic missile factories and military commanders on Friday at the start of what it warned would be a prolonged operation to prevent Tehran from building an atomic weapon. Iran has previously denied such intentions.

The news sent oil prices to their highest in almost five months, which has lent an indirect support to EU gas prices.

"Direct support also came from concerns of a possible blockage of the Strait of Hormuz through which 20 per cent of world LNG supply transit mainly from Qatar, and also from the United Arab Emirates," Engie's EnergyScan said in a morning note.

A trading source said there is a new risk premium now around potential disruptions to LNG shipping, and if oil stays strong then there's some oil-to-gas switch potential.

Asian demand is currently weak, but if any escalation affects the delivery of Qatari supplies to Asian clients, they will have to buy more US LNG, therefore forcing Europe to compete for cargoes.

LSEG analyst Yuriy Onyshkiv said the outlook for TTF today remains bullish, adding that today's trading session will reflect the energy market's reaction to this fresh conflict and the potential for further escalation.

Despite these developments, the supply-demand balance forecast for Northwest Europe remains largely unchanged, with only minor adjustments related to maintenance at the Oseberg field in Norway, Onyshkiv said.

The demand forecast also remains stable over the next two weeks, except for a 164 gigawatt hour per day (GWh/d) decline in Northwest Europe's demand for heating on the day ahead, due to slightly warmer temperatures next week, partially offset by weaker wind speeds, LSEG data showed.

(Reporting by Marwa Rashad; Editing by Muralikumar Anantharaman)