MNI INTERVIEW: European Gas Prices Bearish Despite Volatility

Growing financialisation in gas markets has amplified the influence of non-energy markets and geopolitical instability on short-term price movements, but medium-term fundamentals remain bearish, a senior European Commission energy analyst told MNI.

“The deepening financialisation of energy markets—combined with shifting geopolitical and economic policy variables—has made deviations from market fundamentals more frequent and less predictable,” Manuel Rivas, head of the Market Analysis Team in the Chief Economist Unit at the Directorate-General for Energy at the European Commission said in an interview.

The combination of algorithmic and high-frequency trading and a new world of global uncertainty has increased market sensitivity to short-term signals, Rivas said, pointing as an example to the conflict between Israel and Iran.

 “This stands in contrast to the relatively well-marked fundamentals in oil and gas markets, which indicate clear medium-term trends. However, the robustness of these medium-term trends is different across energy sectors,” he said, noting that oil is naturally more vulnerable to geopolitical volatility than gas.

Increased European reliance on LNG shipments is creating an indirect link between gas and oil prices due to the competition for spot gas between Europe and Asia, Rivas said.

“[Competition for LNG] ties European gas prices to Asian benchmarks, which in turn remain influenced by oil prices. This correlation between oil and gas prices is asymmetric: oil prices exert stronger influence on gas prices than vice-versa,” he added.

MEDIUM-TERM 

Both oil and gas medium-term trends are bearish for at least the coming one or two years, but gas markets potentially more so, with fundamentals pointing to a progressive global oversupply over the next five years, Rivas noted.

“There is a risk that increasingly growing liquefaction capacity results in an oversupplied LNG global market. While investments can be in some cases delayed and adjusted to market conditions, the relative magnitude of total investments as compared with the rise in demand, and the favourable economics of most of the projects, mainly U.S., Qatar, indicate that the market will be considerably impacted”, he said.

The bearish oil trend for the coming one or two years is mainly driven by rising supply, with demand rising more slowly as global trade tensions pressure growth.

Higher LNG supply is backed “by robust economic investment decisions with strong economic inertia” while expected growth in oil global supply is more fragmented and politically exposed, Rivas said, noting that the expansion in key producers like the U.S. is increasingly influenced by domestic political dynamics that can shift rapidly.

“All this underscores the relative fragility of medium-term oil supply trends compared to the more structurally stable trajectory of gas markets,” he added.