European gas prices have retreated, but the tight fundamentals remain unchanged.

⑴ European natural gas prices have fallen for the fourth consecutive trading day, with TTF benchmark dropping about 18% this week and trading near 86 euros per megawatt hour. ⑵ The market is pricing in a decrease in long-term supply disruption risks from the Middle East. ⑶ However, the physical supply and demand situation remains tight. ⑷ EU natural gas inventories have dropped to around 74%, with the normal level being about 90%. ⑸ Germany's stock levels are below 61%. ⑹ Cold weather has already begun to drive more gas withdrawals from storage. ⑺ Wind and solar power output is weak, increasing demand for gas-fired power generation. ⑻ The conflict in Iran has already reduced a significant proportion of global liquefied natural gas supply. ⑼ Therefore, this round of price decline appears more like the geopolitical risk premium being squeezed out of prices, rather than a substantial easing in Europe’s natural gas supply-demand balance. ⑽ Europe is still entering winter with low inventories, leaving limited room to cushion another supply shock.