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Natural gas tumbled to a four-month low in Europe as Ukraine paid its debt to Russia, reducing the risk of disruptions to flows from the continents biggest supplier and prompting Societe Generale SA to cut price forecasts.

Front-month prices reached the lowest levels since August in the U.K. and the Netherlands, Europes largest traded markets, broker and exchange data showed. Societe Generale reduced price forecasts for U.K. gas for a second time in less than six weeks as NAK Naftogaz Ukrainy settled a debt to OAO Gazprom and pre-paid for January supplies. Russia began the New Year by cutting flows to Ukraine twice in the past decade.

Russia supplies about a third of Europes natural gas, half of which flows via Soviet-era pipelines crossing Ukraine. European gas prices fell more than 20 percent in 2014 as the mildest year on record left storage sites the fullest since at least 2009, according to Gas Infrastructure Europe, a lobby group in Brussels. Oils bear market also pushed prices lower as Russian gas sales are indexed to crude prices with a time lag.

As Ukraine paid back its debt and pre-paid some additional Russian volumes, the market is now more relaxed and looking at the storage overhang and the oil price going down, Thierry Bros, a Paris-based analyst at Societe Generale, said by e-mail today. This is impacting negatively gas prices.

U.K. gas slid as much as 4.1 percent to 47.75 pence a therm ($7.35 a million British thermal units) on ICE Futures Europe, the lowest since Aug. 28 for a front-month contract, and traded at 47.9 pence by 3:50 p.m. in London. The equivalent Dutch contract lost as much as 3.2 percent on the Title Transfer Facility hub to 20.60 euros ($24.81) a megawatt-hour, the lowest since Aug. 29, according to broker data compiled by Bloomberg.

Russia cut gas supplies to Ukraine in June as fighting escalated between pro-Russian rebels and troops backing the Kiev government. Flows restarted in December after the European Union brokered an interim deal, settling price and debt issues through the winter heating season before a court in Stockholm makes a final arbitration decision.

Gas prices in the U.K. will average 49 pence a therm this year and 50 pence in 2016, Societe Generale estimated, compared with respective previous projections of 54 pence and 52 pence. Some oil-indexed contracts will be cheaper than spot gas in the coming months, Bros said.

European gas brokers, traders and analysts are betting on lower prices for U.K. and Dutch fuel for a fourth week, according to a Bloomberg survey of 13 respondents published today. Traders are bearish amid reduced risk of supply disruptions and the return of warm weather next week.

Central and western Europe will have above-normal temperatures in six to 10 days, forecaster MDA Weather Services in Gaithersburg, Maryland, said in a report today. The U.K. will be as much as 3 degrees Celsius (5.4 Fahrenheit) above the norm by mid- to late next week, with an identical forecast for Germany for the latter parts of next week and next weekend, said Byron Drew, lead forecaster at MetraWeather.

U.K. gas for within-day delivery slumped 6.7 percent to the days low of 45.5 pence a therm on the National Balancing Point hub, according to broker data compiled by Bloomberg. Day-ahead fuel fell 2.3 percent to 47.55 pence a therm.

Read more:
Gas Falls to Four-Month Low in Europe Amid Reduced Ukraine Risk