Ukraine’s Kursk incursion reinforces European gas market’s supply anxiety

The Ukrainian incursion into Kursk increases the risk of an early termination to the 42mcm/d flow currently transited through Ukraine via Sudzha . Whilst flows have been maintained for now, the risk of damage during military operations, or a force majeure declaration from Gazprom , remains high. Market developments have been associated with significant adjustments in speculative positions. The recent short covering trend has continued, with t he largest single week of speculative buying pressure (defined as long additions summed with short covering) since 2021 recorded. We also note t he strongest net-long since 2021, with the current position at 21.3bcm. Long positions have increased 5.4bcm over the past two weeks of data. Taking our base-case of no early disruption, we expect prices to fall in the coming weeks. With no fundamental justification for higher prices in the coming months, longs built up in anticipation of supply loss will likely exit if flows remain stable. At €17.1bn, long exposure is the highest since 2022. However, current speculative position is more notable for the absence of shorts , rather than excessive longs - further downside will need speculative short participation. Last year, short positions expanded significantly following the ( fundamentally unjustified ) TTF spike due to the initial Hamas attack on Israel. Could this geopolitical rally provide a similar entry point? We think not – in the near-term, current developments have likely reinforced the views that were keeping shorts out of the market. For the withdrawal season, market participants will need more certainty on winter balances before returning in size .