European energy markets: Winter reserves dip to decade low

European gas markets are tightening as the continent prepares for colder weather with limited reserves.

Wholesale gas prices reached 97 euros, or 81 pounds, per megawatt-hour on Monday. This level has not been seen since 2022. Traders increased their demand for heating supplies as temperatures dropped across the region.

The United Kingdom’s month-ahead contract also rose by 4% to 240 pence per therm. This figure represents the highest level since December 2022. At that time, prices were climbing following Russia’s full-scale invasion of Ukraine.

Concerns regarding supply disruptions in the Middle East are driving these cost increases. Reports indicate that the United States and Israel have planned renewed strikes against Iran. These plans are scheduled to take shape after the US midterm elections. Such reports pushed oil prices to 117 dollars a barrel on Friday. The international Brent crude benchmark fell by 2% on Monday but remains above 114 dollars a barrel.

European gas storage levels are currently at 75%. This is the lowest level in more than a decade. The seasonal average for this time of year is closer to 80%. The shortfall stems from a slowdown in exports from Qatar. Higher summer consumption for refrigeration and cooling also contributed to the decline.

British energy regulators expect the UK to pay some of the highest energy costs in Europe this winter. The country relies heavily on imports to maintain a steady supply. UK gas stores are among the smallest in Europe after decades of dependence on North Sea production. According to the Office for National Statistics, the UK paid a record 4 billion pounds on power imports in the year ending in August. Half of that amount was spent on electricity from France.

The UK also made near-record payments to operate gas plants while wind and solar farms were paid to turn off due to grid bottlenecks. British households face rising bills, which are predicted to increase by 16% in January. The typical annual dual fuel bill will reach the equivalent of 2,000 pounds. European stock markets rose slightly on Monday as oil prices weakened. The Stoxx Europe 600 index was up 0.3% in early trading. The FTSE 100 rose by 0.4%.