Citigroup Sees Overpriced European Gas Prices Amid Hormuz Winter Risks
European natural gas prices have been volatile due to uncertainty surrounding the Strait of Hormuz and upcoming winter weather. Citigroup analyzed different scenarios for the reopening of the strait and winter weather conditions, finding that the market is pricing in a substantial premium for these risks.
The bank estimated a probability-weighted winter price at about €61 per megawatt-hour, compared to current prices around €72.90/MWh. This suggests that traders are assigning a high risk premium to supply disruptions and weather-related issues.
Citi noted that European gas storage levels are low heading into winter, making the market more sensitive to any disruption in liquefied natural gas supplies. Asian LNG prices have also risen, which is linked to the global LNG trade.