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(Bloomberg) — European natural gas prices extended gains for a sixth day, the longest streak in almost four weeks, as the conflict between Israel and Iran raises concerns over vessel traffic via the Strait of Hormuz, a key energy trade route.
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Benchmark futures gained as much as 1.4% on Wednesday, approaching €40 a megawatt-hour, a level last seen in early April.
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Some market watchers are concerned that Iran could choose to attack tankers sailing through Hormuz. Qatar on Tuesday asked liquefied natural gas vessels to wait outside the strait until they’re ready to load amid the escalating violence. About a fifth of global LNG trade passes through the chokepoint.
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“The waterway remains heavily monitored as any disruption to trade flows may result in a disproportionate price increase – particularly for countries that are heavily reliant on LNG coming from the region,” said Lu Ming Pang, a senior analyst at Rystad Energy, in a note. “It’s in the best interest of all Middle Eastern countries to keep the Strait of Hormuz open and prevent any supply disruption.”
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Watch: Energy CEOs Comment on Escalating Middle East Tensions (Video)
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So far, laden south-bound LNG vessels have been passing the strait without delays, while three north-bound tankers have been waiting outside the waterway, with another one potentially joining on Wednesday, ship-tracking data on Bloomberg show. Oil prices are also higher since last Friday due to trade risks along the waterway.
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European gas prices “should be relatively stronger than Brent crude oil,” according to Citigroup Inc. analysts led by Maggie Xueting Lin and Anthony Yuen. “That’s because of a fundamentally tighter market balance of global natural gas than oil, as well as the typically stronger initial price surge of oil than gas after an abrupt escalation of geopolitical tensions, despite effectively confronting very similar transit disruption risks.”
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Dutch front-month futures, Europe’s gas benchmark, added 1% to €39.69 a megawatt-hour at 9:04 a.m. in Amsterdam.
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—With assistance from Priscila Azevedo Rocha.
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