European Natural Gas Futures and U.S. Crude Output Surge

European natural gas futures have pulled back slightly below €56 per megawatt-hour (MWh), though still hovering near a two-year high of €58.039 per MWh reached on February 10. This price surge was largely driven by a tightening in inventories due to colder weather, a decrease in wind power generation, and the termination of Russian gas imports via Ukraine.

On February 9, European gas storage was only 49% full, significantly lower than the previous year’s 67% for the same period and below the 10-year average of 51%. The decrease in gas imports, notably from Russia and Norway, has exacerbated the region's energy challenges. Analysts at Standard Chartered predict that unless temperatures normalize, inventories could finish March at just 39.1 billion cubic meters (bcm), almost 29 bcm less than last year.

Meanwhile, in the U.S., crude oil output has seen a marked increase. The latest Energy Information Administration (EIA) report indicates a rise of 238,000 barrels per day (b/d) to 13.478 million b/d, effectively reversing weather-related disruptions. However, U.S. oil production growth is expected to slow in the coming years, with predictions for modest increases in 2024 and 2025.

Sanctions on Russian Energy and EU's Strategic Response

As part of ongoing efforts to address the geopolitical fallout from Russia’s invasion of Ukraine, the European Commission is proposing a new round of sanctions on Russia and Belarus. These sanctions, which target Russian aluminum, media outlets like TASS, and the "shadow fleet" that facilitates Russian oil exports, come at a time when Europe remains heavily reliant on global energy supplies.

Although the EU refrains from imposing new restrictions on Russian LNG imports due to concerns over energy prices, the proposed measures reflect the EU’s cautious approach to balancing security, energy needs, and economic relations.

On that note, as energy prices remain high, European industrial demand for natural gas has weakened. According to Standard Chartered, price-elastic demand showed a noticeable slowdown in January, despite cold weather. The decline in demand growth, which increased by just 0.3% compared to last year, highlights the impact of high gas prices on industrial consumption across Europe.