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U.S. natural gas futures surged more than 11% at one point on Tuesday to $9.75 per million British thermal units (MMBtu), the highest level since July 2008. The contract later pulled back slightly, and traded at $9.146 per MMBtu at 10:50 a.m. on Wall Street for a gain of 4.8%.
Natural gas is now up more than 77% for the month, putting it on track for the best month going back to the contract’s inception in 1990.
“Although the magnitude and speed of recent natural gas price gains point to contributing non-fundamental market dynamics, supportive fundamentals are nonetheless the primary driver,” EBW Analytics Group wrote in a note to clients.
“Fundamentally, scorching hot weather is the predominant bullish driver,” the firm added.
The contract for August delivery expires Wednesday, which is heightening volatility ahead of the roll. Volume is typically thin ahead of expiration, which means that individual trades can lead to outsized market moves.
Still, the contract for September delivery gained more than 7% on Tuesday to trade around $9.21 per MMBtu.
“There are significant pipeline constraints that are creating price disparities in the physical markets that we have not seen before,” he noted.
In Europe, Dutch TTF natural gas futures jumped 14% to 201.75 euros per megawatt-hour, the highest level since March. The move follows a 10% gain on Monday after Gazprom said it would further reduce flows through the vital Nord Stream 1 pipeline.
Beginning Wednesday, the pipeline will operate at just 20% of its capacity. Gazprom has said the cuts are thanks to turbine maintenance.
“This is not the end of Russia’s weaponization of natural gas flows, in our view, and there remain few near-term alternatives for even current reduced flows to the EU – lending [to] ongoing upside price risks,” RBC wrote last week in a note to clients.
European Union countries on Tuesday reached a deal to voluntarily reduce gas consumption by 15% starting next month. In an emergency, the suggested cuts would become mandatory.
“The purpose of the gas demand reduction is to make savings ahead of winter in order to prepare for possible disruptions of gas supplies from Russia that is continuously using energy supplies as a weapon,” the bloc said in a statement.
U.K. natural gas futures surged 11.7% on Tuesday.
Read More: Natural gas hits highest level since 2008, on pace for best month ever as Russia cuts supply