An expected glut of LNG cargoes into Europe weighed on gas prices yesterday

03 May 2023

Gas Market

The downward trend on the near curve continued unabated on Tuesday as all contracts posted losses following the extended weekend. June, the new front month, gave up 3.13 pence per therm closing at 85.36p. Expected LNG deliveries remain elevated, while the outlook for Norwegian supplies remains healthy. Storage levels are currently at almost 60% fullness, more downward momentum for the falling summer months contracts. Further along the some of the premium continued to fall out of winter-23 and into the following year. Closing at 145.5 pence per therm winter-23 was down when compared with Friday’s close, but still above week ago levels. This was mirrored across the far curve, as the contracts continued to hold premium due to the uncertainty that exists regarding supplies and storage into 2024 and beyond.  

Power Market

In its first session as the new front month, June-23 lost £2.25 per MWh as the expectation of high LNG flows into Europe throughout May is dampening the baseload power market. Coupled with increased LNG is the return to seasonal norm temperatures which will help to keep demand for gas lower. This will result in cheaper power generated by gas turbines. On the far curve prices shook off some of the recent bullishness as a drop on the NBP gas curve fed into the baseload power market. The front season closed at £151.88 per MWh, a day on day drop, but still almost £2 above the low of the last five traded days.    

 Oil Market

On Tuesday, oil prices plummeted by almost $4 per barrel to a five-week low of $75.32, as concerns over a possible U.S. debt default loomed.  The price of oil declined after Treasury Secretary Janet Yellen cautioned that the U.S. government could exhaust its funds within a month and that the government may not be able to fulfil all payment obligations by “early June”. The fear that fuel demand could be negatively impacted if the U.S. and European central banks were to raise interest rates again this week further added to the downward pressure on oil prices. Investors are closely watching inflation-fighting central banks for clues on market direction, as anticipated interest rate hikes could potentially slow economic growth and dent energy demand. The Federal Reserve and ECB are likely to raise the interest rates this week at their regular meetings.    

Markets this morning

NBP gas prices continued their freefall this morning due to the healthy supply picture. Lower flows from Norway due to scheduled maintenance at the Karsto processing plant is being counterbalanced by an overriding narrative in the gas market that an influx of LNG deliveries is expected. Contracts beyond Q3 have yet to trade, with the bid and offers indicating that once traded winter-23 should also open lower than yesterday’s close. Oil is still reeling from the US Treasury Secretary’s comments and the expected interest rate hike later today by the Federal Reserve. Front month crude oil last traded hands at $73.94 a barrel, a decline of $1.38 from last night’s close.  
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