(Bloomberg) -- European natural gas prices posted their biggest weekly drop this year as above-average inventories and lackluster demand outweighed concerns about heat waves across the Mediterranean. 

Benchmark front-month contracts settled 2.4% lower after jumping earlier in the day, and ended the week 22% lower. This was the asset’s biggest loss since December.

Extreme heat is ripping through southern Europe and parts of Germany, with the next blast from the Sahara set to lift temperatures toward record highs in parts of Italy this weekend. Electricite de France SA warned it will curtail production at one nuclear reactor as the heat restricts the amount of water that can be discharged into the Rhone River. That could raise demand for other sources of electricity generation.

Still, gas flows from Norway, Europe’s top supplier, are picking up again after works affected some of the country’s facilities. The market is anticipating the start-up of the Nyhamna gas processing plant on July 15, which would support supply, and the Troll field is also returning to full capacity after lengthy seasonal work, grid data show.

Traders are watching closely for possible updates, given that some works had previously been extended amid technical issues. The capacity curbs at the Kollsnes gas-processing plant, for example, proved to be deeper than expected on Friday after an outage earlier this week, according to data from network manager Gassco AS. 

Further disruptions by large producers, as well as maintenance works affecting global liquefied natural gas supplies, could still strain the market later in the year even though storage facilities are already more than 80% full, analysts at Energy Aspects Ltd. said in a note.

And, despite signs of a recovery in certain sectors, overall European industrial demand for gas remains weak, according to S&P Global Commodity Insights. Industrial demand in Northwest Europe dropped 16% in June from a year earlier and was 25% below the 2017-21 average, they said.

Meanwhile, scientists at the Copernicus Climate Change Service, see strong odds that above-average temperatures in Europe will last into the later months of the year, according to their latest seasonal outlook. A mild winter could see natural gas prices slump to around €15 — more than 40% below the current level — said Morgan Stanley, while acknowledging it’s a tricky period to forecast. 

Dutch front-month gas, Europe’s benchmark, settled at €25.96 per megawatt-hour. The UK equivalent futures fell 1.7%.

--With assistance from Elena Mazneva and Anna Shiryaevskaya.

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