Is TTF gas fairly priced as Hormuz, winter risks keep prices elevated?

European natural gas prices might be overstating the risks tied to the uncertain reopening of the Strait of Hormuz and the approaching winter, as Citigroup estimates a probability-weighted winter price that sits noticeably below current market levels.

According to Citi's analysis, the probability-weighted winter price is roughly €61 per megawatt-hour, versus €72.90/MWh for the October 2026 TTF contract and €70.90/MWh for the November-March strip when the bank's assessment was conducted.

This differential indicates that the market is attaching a sizeable premium to risks associated with supply disruptions and weather conditions.

TTF volatility persists amid Hormuz and weather uncertainties

European gas prices have climbed markedly and stayed volatile as traders weigh two overlapping uncertainties: how soon usual transit through the Strait of Hormuz will resume and how severe the upcoming winter will be.

These uncertainties carry added weight because European gas inventories are low entering the winter, making the market more vulnerable to any interruptions in liquefied natural gas deliveries. At the same time, Asian LNG prices have risen, and the two markets are connected through the global LNG trade.

Citi noted that the current situation has drawn greater interest from investors beyond the conventional energy sector, partly because natural gas prices can influence inflation and reflect lingering memories of the steep price surges caused by supply curtailments in 2022.

Instead of relying on one baseline case, Citi modeled multiple scenarios that pair different Hormuz reopening schedules with various winter weather patterns, and then derived a probability-weighted average of the associated price outcomes.

Funds bolster the rally, but Citi expects downside

According to Citi, positioning is not as stretched today as it was in March 2026 or 2024, despite the substantial price increase.

This implies the rally is not solely the product of existing market positioning; rather, fundamental buyers and investment funds are probably having a more significant impact.

Citi's three-year analysis suggests investment funds have become a principal driver of European gas prices at present, especially when set against the period immediately after the onset of the Russia-Ukraine war.

This dynamic leaves the market exposed to abrupt turnarounds. Citi referenced the marked oil price swings in late 2018, which demonstrate how energy markets can quickly retrace once supply worries subside.

Consequently, Citi has trimmed its price forecasts to €60/MWh for Q3 2026, €56/MWh for Q4 2026, and €41/MWh for calendar 2027.

Citi acknowledged that prices could escalate considerably under unfavorable scenarios, but the central question remains whether such risks are already fully embedded in prevailing market prices.