European natural gas inventories fall to lowest level in five months as traders refuse to stay in the "news casino"

The open interest in the European natural gas futures market has fallen to its lowest level in five months. Traders are struggling to cope with the unpredictable and continuous flow of news from the Middle East, which has led to extreme volatility in natural gas prices, causing many to choose to close their positions and exit. The conflict in the region has been ongoing for nearly two weeks, with no signs of easing, but rather escalating. As a result, some market participants have concerns and are avoiding establishing new positions. Data shows that this week, the total open interest in European benchmark natural gas futures has dropped to the lowest level since October. Earlier this week, natural gas futures contract prices experienced drastic fluctuations, but by Friday they turned into narrow range oscillations. Nevertheless, the implied volatility remains high, leading many trading accounts to suspend trading as they hit their risk limits. Data shows that after the conflict escalated, market participants quickly took action and closed out their previous high short positions. Last week, investment funds covering their short positions hit a historical record. Bloomberg New Energy Financial analyst Han Wei pointed out that although the initial wave of short covering has subsided, "the uncertainty brought by the war remains high." "Any news could instantly trigger drastic price fluctuations." Due to the war, Qatar's largest global liquefied natural gas plant has been forced to shut down, and shipping through the Strait of Hormuz has been substantially disrupted, cutting off about one-fifth of global ultra-low temperature fuel supply. Currently, the market is focused on how long the supply interruption will last - as Europe needs a large amount of liquefied natural gas this summer to replenish almost depleted stocks. "The uncertainty of the duration of the war, coupled with the volatile market reacting to breaking news, is forcing traders to gradually reduce trading activity and actively manage their risk exposure," said Marco Saalfrank, Head of European Continental Commodities Trading at Swiss Axpo Holding AG, last week. The US has announced that its navy will begin escorting oil tankers through the Strait of Hormuz by the end of March at the latest. Reports indicate that Iran has started to lay sea mines in the waterway, which will undoubtedly pose a greater danger to shipping. However, Iran's Deputy Foreign Minister denied the claims on Thursday. As of the time of writing, near-month natural gas futures in the Netherlands (European natural gas benchmark) rose by 1.44% to 51.60 per megawatt-hour. After a sharp drop in prices on Tuesday, natural gas prices may still experience a slight decline this week.