European Stocks Braced for Natural Gas Price Shock
European stocks face growing risks if natural gas prices continue to climb, according to Citi strategists. Natural gas prices have surged above €80 per megawatt-hour, reaching their highest level since late 2022 amid escalating geopolitical tensions.
The region's economy and equity market appear less sensitive to rising gas costs compared to the 2022 energy crisis, when Europe's loss of Russian gas supplies drove prices sharply higher. Gas storage levels are also higher than many investors assume, providing a larger cushion against further supply disruptions.
Commodity strategists expect prices to retreat toward the mid-€50s per megawatt-hour by year-end across various scenarios involving the reopening of the Strait of Hormuz and winter weather conditions. A sustained move higher instead would increase risks to the recent improvement in Europe's economic and corporate earnings trends, particularly for companies with high energy requirements or greater sensitivity to consumer demand.
The broader outlook for European equities remains constructive through mid-2027, supported by solid earnings-per-share growth. However, further increases in gas prices could put greater pressure on cyclical sectors and weaken the improving macroeconomic backdrop.