European Gas Prices Hit 2022 Highs Amid Winter Supply Fears

European wholesale gas prices rose to levels last seen in 2022 on Monday. The spike to €97 per megawatt-hour reflects growing anxiety over winter supply and the continuing conflict in the Middle East. Colder temperatures across the continent have increased heating demand, prompting traders to adjust their forecasts accordingly.

In the United Kingdom, the month-ahead gas contract increased by 4% to 240p per therm. This marks the highest price point since December 2022, a period when costs surged following Russia's full-scale invasion of Ukraine. The price movement signals a shift in market expectations for the coming months.

Market volatility is also driven by reports of potential military action in the Middle East. The US and Israel have reportedly prepared plans for renewed strikes on Iran after the US midterm elections. These developments helped push oil prices to $117 per barrel on Friday. Brent crude eased by about 2% on Monday but remained above $114 per barrel.

Europe is entering the winter season with gas storage at its lowest level in more than ten years. Storage levels currently stand at approximately 75% capacity, compared to a seasonal average of 80%. The drop is attributed to a slowdown in exports from Qatar and higher summer consumption used for refrigeration and cooling.

British energy regulators note that the UK faces some of the highest energy costs in Europe this winter. The country relies heavily on imports to maintain stable supplies, a consequence of decades of dependence on North Sea production. This reliance leaves the UK with some of the smallest gas stores on the continent.

Data from the Office for National Statistics shows the UK spent a record £4 billion on power imports in the year leading up to August. Half of this expenditure went toward electricity imported from France. The country also made near-record payments to start up gas plants while wind and solar farms were compensated to switch off due to grid bottlenecks.

Households in Britain expect higher bills as a result. Energy costs are projected to rise by 16% in January. This increase would bring the typical annual dual fuel bill to an equivalent of about £2,000. Stock markets saw slight gains on Monday as softer oil prices provided some relief, with the Stoxx Europe 600 rising 0.3% and the FTSE 100 increasing by 0.4%.