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European natural gas supply fears ease, for now

The big story this week has been the roughly 20% week-on-week fall in the European natural gas price, as mild autumn weather has combined with weak economic activity and the still-high gas price to drag demand lower than usual for the time of the year. Moreover, several LNG tankers are currently floating off the shores of Europe waiting to unload supply, easing near-term supply worries.

To reflect these developments, we have lowered our end-2022 European gas price forecast from €200 per MWh to €140. It’s worth noting, however, that our end-year price forecast is still above the current price of around €110. That’s because we’re expecting winter heating-related demand to send prices higher. Our end-2023 price forecast is unchanged at €150, as it will be a challenge to rebuild stocks next year.

Next week, commodity prices will take direction from a number of data releases and events. We expect data to be released on Thursday to show that increased exports and decreased imports helped US GDP to expand by 3.3% in annualised q/q terms, after contracting by 0.6% in Q2. If the dollar strengthens on the news, then commodity prices could take a hit. Also on Thursday, it is a close call but we expect the ECB to raise its main policy rate by an above-consensus 100 bp to 1.75%, which may also weigh on prices.

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