Overview
European wholesale natural gas futures extended a multi-month advance on Thursday, rising roughly 1% after coordinated Houthi strikes across Saudi Arabia led the U.S. State Department to order diplomatic evacuations. The escalation injected fresh geopolitical risk into energy markets, supporting higher prices for both gas and crude oil.
Market moves
The Dutch front-month natural gas contract, the European benchmark, increased 1% to trade at 88.70 euros per megawatt-hour (MWh). In Britain, the comparable NBP futures contract also rose about 1%, reaching 218.45 pence per therm. Both contracts were trading close to levels last seen in late 2022.
Oil markets moved in tandem with gas. Brent crude futures climbed $1.29, or 1.2%, to $110.11 per barrel, maintaining levels near five-month highs and reinforcing the bullish tone across energy bourses.
Diplomatic evacuations and the strikes
The U.S. State Department ordered non-emergency staff and family members to leave American missions in Saudi Arabia. U.S. officials told Reuters that plans are underway to remove family members from additional regional missions as well. The evacuation directive followed coordinated strikes on Wednesday by Yemen's Iran-aligned Houthi group.
The attacks included an assault on a civilian airport in Dammam that resulted in at least one death and eight people wounded. Separately, a drone strike near Saudi Aramco's Shaybah oilfield killed two people. These incidents were cited as the proximate cause of the heightened security-related market reaction.
Official statements
On the diplomatic front, Iranian Foreign Minister Abbas Araqchi told the Financial Times that Iran was fully prepared to defend itself. Meanwhile, President Masoud Pezeshkian publicly rejected U.S. dialogue while Washington continues "blockading and threatening" the country - a characterization attributed to him in reported remarks.
Supply route disruptions and storage
Traders and market participants are pricing in the possibility of a prolonged period of heightened tensions as diplomatic channels between Washington and Tehran remain frozen, contributing to risk premia in gas markets. One concrete market effect has been extended carrier reroutings around Africa, which continue to delay spot LNG arrivals at European regasification terminals and encourage utilities to pay up for paper contracts.
Compounding these logistical challenges, EU underground gas storage facilities are at about 74% of capacity - noticeably below the historical late-October average of 86%. That gap leaves storage buffers under pressure heading into the peak winter drawdown period.
Implications for markets and utilities
The confluence of elevated futures, delayed LNG shipments, and lower-than-average storage levels is increasing short-term price volatility and forcing market participants to adjust positioning. Utilities facing delayed physical deliveries are competing in paper markets to secure volumes, while broader energy prices reflect the heightened geopolitical premium.
Outlook
With carriers taking longer routes and diplomatic ties between key regional actors constrained, market participants are treating the current environment as one in which supply-side risks could persist through the winter season. How those risks evolve will depend on developments that are not yet resolved.
Key Points
- European gas futures climbed about 1% on Thursday, with Dutch front-month gas at 88.70 euros/MWh and NBP at 218.45 pence/therm, near late-2022 highs.
- Coordinated Houthi strikes in Saudi Arabia prompted the U.S. to order evacuations of non-emergency staff and families, and included attacks that killed at least three people across two incidents.
- Brent crude rose $1.29 to $110.11 per barrel, reinforcing energy market gains; extended LNG carrier reroutings and below-average EU storage at 74% are adding pressure ahead of winter.
Risks and uncertainties
- Potential for prolonged disruption to LNG transit routes through the Persian Gulf - this affects LNG shipping, regasification terminals, and utilities dependent on imported spot cargoes.
- Below-average EU storage levels (about 74% versus a historical late-October average of 86%) leave the region more exposed should further supply delays occur.
- Frozen diplomatic channels between Washington and Tehran introduce an uncertain timeline for de-escalation, influencing market risk premia for energy commodities.