Persistent volatility defined European gas markets

25 August 2023

Gas Market

Persistent volatility defined European gas markets for the second consecutive session yesterday. Efforts were made within the market to restore stability through the release of risk premium across the curve. This strategic move was underpinned by the optimistic outlook surrounding the potential resolution of labour strike concerns at Western Australian LNG facilities. While a preliminary agreement was successfully brokered at the Woodside Energy facilities, the situation remains less certain regarding the remaining LNG facilities. Recent events have highlighted the inherent vulnerability of European gas supplies in the absence of Russian pipeline gas and serves as a reminder of what could potential unfold as we head into winter. The front season Winter 23 recorded heavy losses, shedding 13.49p to settle at 122.25p a 11-day low. While NBP gas contracts for the remaining months of the year lost 14.16p on average.  

Power Market

Downward momentum in the UK gas market filtered into the GB baseload power contracts yesterday, marking two consecutive sessions of losses. The Winter 23 contract hit an eight-day low to settle at £118.15/MWh. Amid the August volatility, it’s worth highlighting that the Winter 23 contract, despite its fluctuations, has maintained an average premium of £0.85/MWh over the July average price. GB baseload for Day Ahead delivery moved £19.10/MWh lower to settle at £93.80/MWh. In parallel, the EUA carbon prices demonstrated a continued correlation with the energy market’s dynamics, with the Dec 23 moving €2.79 lower to close at €85.21 a tonne.  

Oil Market

The Brent crude front month contract dipped below $83 a barrel for the first time since July 26th during yesterday’s trading session. However, as the day progressed, the contract gained upward momentum, ultimately settling $0.15 higher at $83.36 per barrel. Weak macroeconomic continued to outweigh a tight global supply, however prices pushed higher in the late afternoon after data released highlighted a 3% decline in gasoil stocks in Europe. Anticipation now turns to the upcoming address by US Federal Reserve Chair Jerome Powell, scheduled for Friday at the US central bank conference. This speech holds a historical precedent for swaying market sentiment, assuming a pivotal role as the United States grapples with the contemplation of interest rate hikes.  

Markets this morning

Despite significant losses experienced yesterday, UK gas contracts are displaying resilience this morning, as the front month contract has rebounded by 5.38p, to last trade at 85.70 pence per therm. Gains are limited on further dated contracts however, with Summer 24 last trading 1.34p higher at 126.50p. Market sentiment continues to pivot around the ongoing discussions between Australian unions and LNG facilities, a factor poised to strongly shape the market trajectory. In the wider fuel mix, Brent crude prices are also pushing higher, last trading at $84.55 a barrel.  
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