As Russian military exercises near Ukraine ended on schedule, UK gas prices moved lower against a still volatile trading backdrop with benchmark gas for delivery the next day slipping 2 pence to 59.25 pence per therm.

"With some troops moving away from Ukraine's borders and in the absence of any other news from the region, most prices have come off about two pence, but they're still holding a premium," a UK gas trade source said.

"Prices would be a lot lower if this wasn't happening," he added.

Europe's biggest gas supplier Russia provides around a quarter of continental demand, a third of that coming via Ukraine, posing a supply risk to consumers.

"All eyes will now be on the first signs of physical supply disruption into Western Europe, which would push further risk premium into those prices, although a significant supply disruption this week would come as a surprise," analysts at consultancy Energy Aspects said on Tuesday.

A mild winter, improved infrastructure and higher stored reserves mean Europe is generally less reliant on Russian natural gas transiting via Ukraine than in recent years.

European gas inventories are currently 31 percent higher than the same time last year, according to Energy Aspects.

Britain is particularly well placed to handle supply disruptions compared to its neighbours, which rely more on Russian supplies.

Storage stockpiles running well above average levels combined with a 12-year low in gas demand should help dampen any price spikes.

Gas for immediate delivery fell 1.85 pence to 59.45 pence in response to an oversupplied transmission network and higher imports from Norway and the Netherlands.

"The risk factor of the conflict between Ukraine and Russia still persists," analysts at Thomson Reuters Point Carbon said.

A slight upward revised temperature forecast for Wednesday reinforced contract losses.

British gas demand was estimated at 272.5 million cubic metres/day, according to National Grid data.

"Prices remain inflated on the levels seen last week, though some of the risk built in has eroded," another trader said.

"A reversal in the price of oil together with the fact that Russian gas imports via Ukraine yesterday actually increased, seeing both April and May contracts trading down by 2.8 pence," he said.

The benchmark summer 2014 gas contract also shed value largely in response to bearish oil prices and the fact that Russian supplies are still flowing, although risks remain.

"The Summer-2014 contract is currently offered 3 pence lower than yesterday, though as the political situation persists trading on prices across the board is volatile and the potential for increases on the back of further announcements remains," the trader said.

(Reporting by Henning Gloystein; editing by Jason Neely)

By Oleg Vukmanovic