FX.co ★ Fitch halves its forecast of gas price in Europe for 2023

Fitch Ratings Inc. slashed twice its forecast of the average gas price in Europe and downgraded its expectations of LNG prices shipped from the US for the year ahead and 2024.

Fitch experts predict that the benchmark Dutch TTF gas futures will trade at $20 per 1,000 cubic feet or $706 per 1,000 cubic meters on average. In the forecast in December, the rating agency projected the Dutch-traded TTF price to average $40 per 1,000 cubic feet or $1,412 per 1,000 cubic meters in 2023.

The forecast was revised downward because European gas reserves had been filled up to a greater extent than expected. The EU authorities managed to pump up huge gas reserves at the end of the winter on the back of lower demand and active LNG supplies.

The International Energy Agency estimated that Europe consumed 13% or more than 70 billion cubic meters less gas last year than in 2021. It has been the sharpest drop in demand in the EU in its whole history.

Fitch confirmed its forecast of TTF gas prices for 2024-2026 and for the longer term. The agency still projects prices to go down because the EU countries will come to terms and improve the pricing mechanism.

Besides, the experts cut the forecast of gas prices traded at the US-based Henry Hub. The average price is expected at $3.5 per 1,000 cubic feet or $123.6 per 1,000 cubic meters this year. Interestingly, in December, the analysts supposed that US-traded gas would cost $5 per 1,000 cubic feet or $176.5 per 1,000 cubic meters.

The forecast for 2024 was also downgraded from $4 to $3.5 per 1,000 cubic meters. The expectations were lowered on the back of warm weather in North America and Europe. The agency predicts that US drilling companies will increase gas output on the Haynesville Shale and the Permian Basin.

As for the oil outlook, Fitch maintained its expectations of Brent crude prices for this year and the long term. The experts revised the medium-term forecast. They upgraded the average Brent price from $65 to $75 per barrel for 2024 and from $53 to $65 per barrel for 2025.

To set the stage for a considerable decline in energy prices, the EU needs to boost supplies from OPEC+ producers to replace dwindling petroleum imports from Russia. This is a painstaking process.

The energy market is likely to remain tense in the medium term. The agency believes that the market will eventually strike a balance because petroleum output will be ramped up in the countries outside OPEC, in the US in particular, and in OPEC countries, for example, Saudi Arabia and the UAE.