(Bloomberg) -- Natural gas prices in Europe rose as a hot and dry summer dries up rivers in the region and boosts demand in a market that is already reeling from a supply crunch.
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Benchmark futures increased as much as 2.5% on Monday. Very low water levels at key waypoints on Europe's rivers are making it difficult for diesel, coal and other commodities to be transported through the continent. Utilities could end up using more gas as an alternative.
That could constrict governments' efforts to reduce consumption and send more gas into storage for use in the winter months. Still, stockpile levels have stayed near average levels due to higher imports of liquefied natural gas, keeping price rises in check. German storage hit a refill target two weeks ahead of schedule.
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The water level at Kaub on the Rhine River dropped to the extremely low level of 30 centimeters (11.8 inches) on Monday and is forecast to hold near that until at least Aug. 18, the latest German government data show. The Rhine is western Europe's most important river for the transport of fuel and other industrial goods.
Dutch front-month futures, the European benchmark, rose to the day's high of 211.35 euros a megawatt-hour as of 10:37 a.m. in Amsterdam. They gained for a fourth straight week on Friday, and are about 10 times higher than the seasonal average of the past five years. The UK equivalent contract jumped 2.3% on Monday.
Any spike in demand could further tighten the market that's been squeezed by Moscow's supply cuts. Shipments through the key Nord Stream pipeline remain at about 20% of capacity. The curbs have slammed Europe's economy, hitting industrial output, driving up inflation to the highest in decades and threatening to push major economies into recession. Competition for LNG cargoes is also heating up as Asia boosts purchases to stock up for the coming winter.
The sentiment remains "very bullish due to low flows from Russia and the increased likelihood that Nord Stream 1 will not return to normal flows anytime soon," analysts at trading firm Energi Danmark said in a note.
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