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Nat gas up ish 100% in two weeks as supply vulnerability = reality

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European gas markets are no longer repricing risk. They are pricing disruption.

Ole R. Hvalbye, Analyst Commodities, SEB
Ole R. Hvalbye,
Analyst Commodities, SEB

Since yesterday morning, TTF has moved violently higher. After trading around EUR 39/MWh early yesterday, the market spiked to EUR 49/MWh in the afternoon, a EUR 10/MWh move in just a few hours. That first leg higher followed reports of halted Qatari LNG production, precisely the operational vulnerability we highlighted yesterday: limited storage buffers, and Ras Laffan as an exposed target.

Later in the evening, prices retraced to around EUR 43/MWh. The second leg was even more aggressive. Overnight, TTF surged from ish EUR 43/MWh to nearly EUR 60/MWh as we write. The trigger was explicit rhetoric from an advisor to the Iranian Revolutionary Guard stating that the Strait of Hormuz is closed and that vessels attempting to transit would be targeted.

That materially shifts the probability distribution. This is no longer about shipping hesitation. This is about declared closure risk. It was some pullbacks this morning linked to reports that Chinese gas buyers are pressuring Tehran to keep the Strait open. That is logical: Asia is the primary destination for Gulf LNG. But Iran has now signaled intent. At this stage, it looks like only meaningful de-escalation from Washington would materially cap upside momentum in oil and gas.

Physical vulnerability is real. Yesterday we highlighted three core vulnerabilities:

#1 20% of global LNG trade transits Hormuz.

#2 Qatar exports ish 9-10 Bcf/d through a corridor with virtually no bypass capacity.

#3 Qatari liquefaction operates with only 1-2 days of storage buffer.

The third point ref. Qatari LNG is now central. Liquefaction trains run continuously. If vessel loading stops due to distruptions or physcial attack on infrastcutre, storage fills rapidly. Once tanks approach capacity, output must be reduced. Restarting trains is not instantaneous. i.e., maritime disruption becomes upstream supply loss as we speak.

Unlike some of the oil, LNG cannot be rerouted through pipelines in the Persian Gulf. Also, the global LNG system is narrower, more concentrated and structurally less flexible. There are no strategic LNG reserves of scale. Removing, or even temporarily freezing, ish 20% of global trade creates immediate tightening across both basins.

Europe is indirectly exposed: while 80%+ of Hormuz LNG volumes are Asia-bound, Europe is not insulated. Roughly 8-10% of European LNG imports are indirectly linked to Gulf supply. More importantly, if Asia loses Qatari volumes, it bids aggressively for US cargoes. That tightens the Atlantic basin and lifts TTF.

The backdrop is not comfortable. European storage sits around 30%, well below the ten-year seasonal average of 44%. March weather remains slightly bearish (NW Europe ~2°C above normal), which provides short-term demand relief, but weather cannot offset sustained loss of large LNG volumes.

Going forward, duration is everything. Our base case yesterday assumed 4-5 days of meaningful disruption followed by a messy partial restart. That assumption now looks optimistic if rhetoric translates into sustained closure.

Iran does have strong economic incentives to avoid prolonged closure; its own crude exports depend on the strait. But if Tehran perceives the situation as existential, economic self-interest may become secondary. That is the key swing factor.

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This is ultimately an endurance game. The question is not whether the strait can be fully sealed, but how long meaningful disruption can be sustained.

At current levels, the market appears to be pricing roughly a 1-2-week disruption, effectively a fleet productivity shock (shipping delays, insurance hikes, restart lag) rather than structural long-term supply loss. If Qatari output resumes relatively quickly, TTF likely consolidates in the EUR 40-50/MWh range.

If disruption extends to one month, roughly 7 million tonnes of LNG will be removed from the market. Europe could effectively lose around 5.5 million tonnes per month through displacement effects. In that case, inventories fall more sharply and TTF moves decisively into EUR 60+/MWh territory.

A multi-month Ras Laffan outage is a different regime entirely. At that point, the system risks a 2022-style squeeze, where EUR 100/MWh and above cannot be excluded and demand destruction becomes the primary balancing mechanism.

Yesterday we framed EUR 90-100/MWh as a tail scenario. With TTF already printing near EUR 60/MWh, the gap between “tail” and “plausible stress case” is narrowing, but sustained supply loss over 1-2 weeks is still required for that scenario to materialize.

Iran has made clear that energy flows are part of its retaliation strategy. The key variable from here is endurance. Even partial choking of flows, combined with persistent strike risk, is sufficient to keep prices elevated. A prolonged period of instability would pressure global energy prices and, indirectly, US gasoline prices, a politically sensitive variable heading into US midterm elections.

i.e., unless a diplomatic off-ramp emerges, duration of disruption is now the central driver.

In short: availability of LNG exports from the Persian Gulf, and the restart timeline at Ras Laffan, are the two dominant swing factors from here. Volatility will remain elevated. The system is too concentrated and too inflexible to absorb prolonged disruption without further repricing.

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Analys

The Trump diesel charade

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Brent higher last week and today as fresh attacks by Iran and the Houthis shattered a sense of temporary normality exports from the Persian Gulf. Brent crude traded in a range of $97.06 – 105.92/b and closed the week at $104.72/b. The Brent Dec contract gained $2.47/b on the week. Fresh attacks by Iran on ships in the Gulf and the SoH probably reduced exports of oil through the SoH last week. Exports from the Persian Gulf had reached close to normal levels in the second half of September and into early October. This has led to a large increase in oil on water globally which has helped to ease and reduce November and December prices over the past month. The sense of some kind of normality of exports from the SoH was shattered last week. Fresh attacks by the Houthis on Saudi Arabia added to this and helped to lift prices. It is well known that the US and its allies in the Gulf are running low on defensive rockets. Hard choices over what to defend will increasingly have to be made: Oil infrastructure, military installations, royal palaces, civilian airports or other. The US will also have to decide how many defensive rockets it can provide to its ME allies versus what it needs for its own defenses. Ukraine is at least not getting any of these defensive rockets however much needed for defense against a continuous barrage of Russian attacks on Ukraine. The front-month ICE Gasoil 10ppm (essentially ULSFO Diesel) is down 3.8% this morning (due to Trump’s diesel charade) to $1427/ton ($191/b) which is where it traded last Thursday.

Bjarne Schieldrop, Chief analyst commodities, SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

Trump’s diesel charade. The site ”535” now puts the probability for control of the US Congress and Senate following the midterm elections at 99% and 61% respectively. Trump’s war in the Middle East with high or record high gasoline and diesel prices at the pump in the US is largely to blame. Trump’s diesel deal with Russia is clearly Trump trying to shift the blame from his own war in the ME to Ukraine instead. He could of course have placed the blame on Putin and Russia for its war against Ukraine, but no, it is Ukraine who gets the blame and not the least Zelenskyy. Physically it is of course correct that it is Ukraine who is destroying Russian refineries to the point where 45% of Russian refineries are out of operation. The result is that there is too little gasoline for domestic Russian consumption and no diesel, VGO and Jet fuel left over for exports. Russia normally (pre-war 2022) exports some 1.3-1.4 mb/d of diesel products of which a lot used to go to Europe.

Russia/Putin would happily export diesel products to the world, but it can’t because Ukraine is destroying its refineries. Russia implemented export restrictions of diesel already in July this year and the plan was to extend that to early 2027.

The only way that Putin/Russia can start sustained diesel exports, is if Trump is able to discipline and prevent Ukraine from attacking and destroying Russian refineries. Then Russian refineries can be repaired, ramp up, produce more diesel and potentially export what ever is of surplus to the world. Trump has threatened Ukraine that if it doesn’t stop its attacks on Russian refineries, then there will be no more indirect sales of weapons from the US via Europe to Ukraine and the intelligence which US currently is providing to Ukraine will stop.

It is clear that if Russia stops its attacks on Ukraine, then Ukraine is prepared for a energy infrastructure cease-fire.

Trump very well knows that he has himself to blame for the terrible stats for the upcoming midterm elections where Republicans looks set to lose both the Senate and the House. This is a charade for the US public to shift the blame over to something or someone else than himself. His easy choice falls on Ukraine and Zelenskyy for which he has shown little love, affection and support. Nothing of the one way bromance which Trump has shown versus Putin.

At most a three-week holdup in Ukrainian attacks on Russian refineries. Ukraine accepting to play scapegoat. Ukraine’s attacks on Russian refineries and oil infrastructure is a key element of Ukraine fighting back and defending itself against Russia. Ukraine has no choice but to continue its attacks as long as Russia keeps attacking Ukraine. But maybe there can be a three week holdup where Ukraine is forced by the US to step down its attacks on Russian refineries to please Trump until the US midterm elections are behind us. I.e. Ukraine accepting to be the scapegoat for Trump’s missteps in the Middle East for a three week period. Thereafter it will revert back to well thought out strategy of attacking Russian oil and refinery installations.

Trump under increasing pressure as there is increasing probability for Democratic victory in US midterm elections. Desperate times and desperate measures from Trump as a result. More to come

Trump under increasing pressure as there is increasing probability for Democratic victory in US midterm elections. Desperate times and desperate measures from Trump as a result.
Source: 535 — 2026 midterms forecast, https://535.wtf/

Large increase in oil on water heading for consumers around the world following a sharp increase in exports of oil from the Persian Gulf to close to normal from mid-Sep. Lower exports last week after new hostilities most likely.

Large increase in oil on water heading for consumers around the world following a sharp increase in exports of oil from the Persian Gulf to close to normal from mid-Sep. Lower exports last week after new hostilities most likely.
Source: SEB graph and highlights, Bloomberg data feed from Vortexa

Crude, products and natural gas prices in USD/boe. ICE gasoil slightly lower today, but still $195/b

Crude, products and natural gas prices in USD/boe. ICE gasoil slightly lower today, but still $195/b
Source: SEB graph and calculations, Bloomberg data
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Analys

The price of crude oil in Europe today is $140/b

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Last week’s oil price action distorted by rolling of the November contract last week. The December Brent crude oil contract rose $4.8/b, or 5% last week. Much of that gain was due to the roll-yield as the November contract rolled off as the M1 contract to be replaced by the Dec-26 contract. The backwardation between the Nov and the Dec contract averaged $6.5/b over the last three days before 1 October and the rolling of contract. The ”gain” over the week was thus not much of a gain at all. If we just look at the M1 contract it instead fell 2% Friday to Friday though that disguises the change in the underlying contract over the week. The Brent M1 contract closed the week at $102.25/b. The announcement of 100 mb of oil from G7 SPR helped to ease prices at the end of last week. Though that effect seems to have faded today.

Bjarne Schieldrop, Chief analyst commodities, SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

More barrels from Strategic Petroleum Reserves or really barrels which were supposed to be released previously? Nonetheless, Trump seems to be content and is backing down from diesel export ban. Trump threatened the world, but especially Europe with a US diesel export ban unless Europe agreed to release diesel from strategic reserves. G7 last week decided to release 100 million barrels of oil from strategic reserves. But here the obscurity starts. How much of that will be diesel? ”Substantial release of diesel within 20 days” was the statement. If it happens late in this 20 day period, it would bring us very close to the US midterm elections which of course is what Trump is worried about here. IEA members promised to release 425 mb of oil from strategic reserves of which 125 mb was to be oil products. But a significant portion of that was never really released. The question is thus whether these ”new” 100 mb release will really be new or if the lion’s share of the ”new” 100 mb is really just part of the old 425 not yet fully released. Well, it looks like the promise, irrespectively what it really is, has averted a US diesel export ban for now. And it did also help to ease prices a bit at the end of last week. An effect which looks like it has mostly faded this Monday.

$140/b is the price of crude oil in Europe today. Back to the complete distortion of oil and product prices in time and geography. The Dated Brent ”spot” price averaged $123.3/b last week. But that is really the average Day_10 to Day_20 of the ”daily Dated Brent” forward curve. But since this curve is in very steep backwardation, the real prices for physical oil cargoes at the very front-end of this daily curve sits well above the average of this daily curve. The physical premiums for Oseberg and for Fortis crude takes this steep backwardation into account. The full price average for Oseberg and Fortis last week were thus $142.5/b and $140.2/b. That is way, way higher than both the Dated Brent ”spot” price last week and the average of the Brent futures price, the M1 contract, which averaged $103.2/b last week and is trading at $102.4/b

Extreme prompt tightness may fade or get much worse. The extreme prompt tightness and backwardation we see in the market today is a display of today’s prompt situation and not necessarily a guide for the future. The much more relaxed Brent M1 contract (today December) at $102.4/b is maybe a reflection of an oil market either betting or expecting that today’s problems will be resolved somehow over the coming three months. Or, that the current flow of oil out of the SoH at 17.5 mb/d (close to normal) will be sustained or even increase over time. But we don’t know exactly why the flow of crude, products and LNG out of the SoH has been able to sustain at around 17.5 mb/d since mid-September (it seems). Is it because shippers are better at managing the risk or more willing to take the risk of transiting? Is it because the US military assistance is better? Or is it because Iran is paid by exporters and is allowing exports out through the SoH? It seems plausible that Iran expects the US to attack again after the US midterm elections. If so, then Iran may engage with fresh attacks before that date. Physical crude in Europe today is $140/b, or 2x the ”normal” price of $70/b. But if tightness escalates further, then price of crude in Europe could go to 3x, 4x or even 5x the normal level. Let’s hope that the US is able to keep the SoH ”open” at a rate of 17.5 mb/d and that another 100 mb of oil from G7 helps to shield against that upside risk.

The global oil-stock cushion is getting ”scarily thin”. Looking at the Brent M1 Dec-26 contract, one gets the impression that risks may be fairly contained. Looking at physical spot prices in Europe however of around $140/b, the sense of stress rises substantially. The latter better reflects Amin Nasser, CEO of Saudi Aramco, when he recently said that the cushion capacity of global oil stocks are getting ”scarily thin”.

Some key questions helping to keep the Brent M1 price above $100/b: Will Iran initiate fresh attacks before the US midterm elections? Will the US attack Iran after the elections? Will the US be able to keep the SoH close to open at 17.5 mb/d? Will the Houthis re-attack the Saudi east-west pipeline and ships trying to traverse the Bab-el Mandeb Strait as the Saudi-backed Yemen government tries to retake areas along the Red Sea recently taken by the Houthis? How far will this have to go before China finally decides to step in as a peacemaker in ME negotiations?

ARA Crude oil, diesel and nat gas prices in USD/boe

ARA Crude oil, diesel and nat gas prices in USD/boe
Source: SEB calculations and graph, Bloomberg data

Physical crude oil premiums for Fortis and Oseberg in the NSea in USD/b premium over the Dated Brent index

Physical crude oil premiums for Fortis and Oseberg in the NSea in USD/b premium over the Dated Brent index
Source: SEB graph, Bloomberg data feed, Platts data
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Oil prices are rising, but a picture of the future ME order may start to emerge

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Spot crude oil prices at very high levels. The Brent 1M (November) contract yesterday traded between $103.76 – 108.83/b before settling the day at $105.28/b. This morning it is trading up 1.4% to $106.8/b. That is not much of a price given that the ME crisis has been ongoing since 28 February. The Dated Brent spot price however settled yesterday at $123.78/b and averaged $120.6/b last week. Even stronger were the individual North Sea spot crude prices where Johan Sverdrup crude averaged $144/b from 21 to 24 September. And Johan Castberg was said to have traded at a premium of $32/b to the Dated Brent price last week which potentially would have placed it closer to $150/b.

Bjarne Schieldrop, Chief analyst commodities, SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

A steady trend higher since $70/b in early July. Crude oil prices have been on a steady trend upwards since they bottomed out at around $70/b in early July following the discharge of some 200 million barrels of crude, products and liquids from the Persian Gulf during a two week MoU window. from 20 June to 7 July when hostilities again resumed.

The oil market today is split apart in time, space and molecules. Financial crude oil prices for November delivery are trading at $106/b (Brent) and $93.3/b (US WTI) and $107/b (Oman). But spot crude oil prices are much higher at $120-150/b as described above. But consumers do not consume crude oil, they consume diesel and gasoline and other products. And diesel prices are closer to $200/b in ARA due to destruction of Russian refineries and locked-in refineries in the Persian Gulf. Oil markets are very stressed with respect to products, but not so stressed with respect to crude oil. But refineries are eager to pay up for crude deliveries right here and now so they can convert that crude to products and make a killing profit. They are not willing to pay up for November crude deliveries in the same way as uncertainties on the Middle East situation is so high. Exorbitantly expensive VLCC freight rates is also driving prices apart. VLCC freight rates are today running at 500,000 to 1,000,000 dollar a day rather than the normal 20,000 a day. This typically adds $10-20/b for crude oil between the point of origin and the point of delivery some 30-50 days out in time when the crude is delivered. This creates a lot of confusion of what really is the price of crude oil these days. Prices are very different in time and space.

Bonds and equity markets are starting to feel the heat. The Middle East crisis is starting to feed risk and pain into financial markets where the US 10-year rate is rising along with crude and product prices with equity market indices starting to pull back in response.

The risk is rising that the ”Trump war” in the Middle East may lead to the ”Trump recession”. A legacy Trump would not likely want to have. Feed-through to financial markets, rising risks for US financial and economic recession, rising risk to Trump’s legacy, declining US stocks of Patriot and THAAD rockets could be forcing mechanisms towards a resolution of the Middle East crisis. 

A picture of the future Middle East order is starting to emerge. There seems to be a lot of discussions between different parties going on and a picture of a new Middle East order is starting to emerge. A post Middle East pax Americana order. Where the different countries in the Middle East are taking much more responsibility for the security order in the region. The US provides intelligence and sell weapons to the region but is reducing its military presence. Iran is recognized as a regional power, but not the dominant one and is part of the security order in some ways. Trump can say that he reshaped the Middle East order. Exports of oil restored. The region now paying for its own defense. US soldiers pulled out to a minimum. China part of the diplomatic solution and taking some responsibility for keeping Iran in check.

Time to some kind of ME resolution? Forcing mechanisms: Declining stocks of defensive US rockets + rising crude and product prices + rising economic and financial pain and rising risk to Trump’s legacy. A window of resolution could be November to January maybe. Markets will likely increasingly price in a resolution as the picture of the future security order in the Middle East emerges further.

Crude and diesel prices in USD/b

Crude and diesel prices in USD/b
Source: SEB graph, Bloomberg data

European M1 refinery margins at record high.

European M1 refinery margins at record high.
Source: SEB graph, Bloomberg data
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