Most extreme volatility ever seen on the gas market

UK and Western European gas markets rocketed

UK and Western European gas markets rocketed on Wednesday morning with gains of around 33% on market opening.  A forecast cold spell for later this month and early November, combined with low storage levels pushed UK gas prices up by over 100.00p in the most extreme volatility ever seen on the market.  The front month contract saw a swing of over 150.00p, peaking at 407.00p and dipping to 255.00p before settling at 273.45p, 20.46p lower day-on-day.  Stronger Norwegian deliveries and more LNG cargoes heading for the UK, has improved the supply outlook slightly and this helped ensure that movement was not quite as severe on the remaining winter months with most settling around 17.00p lower day-on-day.

 The early spike in gas prices saw the power contracts soar

Baseload power futures for November and December followed gas and carbon prices lower on Wednesday.  Losses were more marginal on Q1 2022 inexplicably.  The early spike in gas prices saw the front month power contract soar to £360/MWh but later fall back to settle at £265/MWh.  EU ETS unit prices fell by over €4.00 per tonne day-on-day. Lower wind generation on the day saw the day ahead contract gain marginally but falling carbon prices helped minimise the gain.  Wind generation fell from almost 10GW on Tuesday to just 5GW yesterday but is forecast to pick up again later tomorrow and for the rest of the week.

Crude oil shared in the energy market bullishness early yesterday

Crude oil shared in the energy market bullishness early yesterday morning with Brent crude trading at $83.50 a barrel by 0800.  The downturn in gas prices saw a reversal on the oil market also and this was compounded by a strengthening dollar and an increase in oil stocks in the U.S.  This latter fact was confirmed with the release of the weekly inventory data from the U.S. Energy Information Administration.  Monday’s decision by OPEC not to increase production seemed logical in light of the situation in the U.S. although the supply-demand balance may not be as comfortable in other parts of the world.  In any case, crude oil prices eased on the day with Brent closing at $81.08 or $1.48 a barrel lower day-on-day.

Vladimir Putin announced increased gas flows

Yesterday’s statement by Vladimir Putin announcing increased gas flows from Russia to Western Europe was widely welcomed on the markets.  While the increase is expected to amount to a relatively modest 20MCM today, it seems to have been enough to temper the extreme bullishness on the gas markets seen in recent days.  The UK front month price has shed 50.00p in early trading this morning and prices on out into Summer 22 have eased also.  The UK gas system is forecast almost 20MCM long today and we expect prompt prices to fall once any significant trades are recorded.  Crude oil prices have also eased with Brent down by almost a dollar to $80.12.