A cold snap and rapidly depleting fuel inventories have unsettled market sentiment, positioning European natural gas prices for their largest monthly gain in at least two years. As of press time, the benchmark Dutch natural gas futures contract for March delivery edged up 0.5% to €38.77 per megawatt-hour. The benchmark futures saw a slight uptick on Friday, bringing the cumulative gain for the month to approximately 38%. This marks the most significant increase since the summer of 2023, and if the daily gains hold, it could become the largest monthly surge since the energy crisis four years ago.

While supply concerns have eased somewhat with the rebound in U.S. exports, forecasts indicate that parts of Europe will face severe cold weather in early February, which is expected to drive up demand. The European gas market experienced considerable volatility throughout January, reflecting renewed anxieties over the continent's fragile fuel balance. In addition to rising natural gas consumption, winter storms in the United States temporarily disrupted production facilities, triggering a spike in U.S. gas prices and intensifying a scramble among European traders to cover their previous short positions.

Tensions in the Middle East have also contributed to the upward momentum in gas prices. Analysts James Waddell and his team at energy consultancy Energy Aspects noted in a report this week, "Given exceptionally low inventories, price risks remain skewed to the upside." They also wrote that unstable weather models in recent weeks have partly contributed to the heightened volatility in gas prices. Traders are also closely monitoring the situation in Iran, as escalating threats from U.S. President Donald Trump against Tehran continue to keep the broader energy market on edge.

Meanwhile, Trump stated on Thursday that he had reached an agreement with Russia to suspend airstrikes in Ukraine for one week, coinciding with an impending extreme cold wave expected to hit the country.