During the opening session of the winter gas period, NBP prices dipped at the front end of the curve, reflecting a market responding to robust near-term fundamentals, rekindling the familiar narrative of risk premium erosion for near delivery contracts. Yesterday’s trading session saw the November front month contract shedding 7.04p to settle at 98.36p, its lowest level since late 2021. The front quarter Q1-24 reached its lowest level since June 9th, closing at 121.60p. The last time we saw a decrease in gas prices at the beginning of the winter season was back in 2020, and that decline was marginal compared to yesterday’s loss, underscoring the significant risk premium currently embedding in future gas prices. Taking a broader view, the Asian LNG spot prices surged to a 7-month high due to rising demand in yesterday’s market. This is a critical factor to keep a close eye on, given Europe’s heavy reliance on LNG in the absence of Russian pipeline gas.
Tracking losses in the gas market, GB baseload power prices unwound risk premium during yesterday’s session. Once again it was the front month contract that bore the brunt, shedding £5.50/MWh to close at £92.00/MWh. Further out the Summer 24 contract closed at £100.00/MWh its lowest level since June 8th. Losses in the carbon market supported yesterday’s downward sentiment. Significant losses were recorded in the GB baseload prompt market, with the Day ahead contract closing at £60.75/MWh, down £34.25/MWh. These losses were fuelled by robust wind generation, surpassing seasonal norms by 20%, and weak demand.
Brent crudes front month contract peaked at $93.33 per barrel in the early hours of Monday’s trading session. This price movement unfolded against the backdrop of heightened anticipation in the market, with investors eagerly awaiting remarks from the US Federal Reserve. However, as the day progressed, the market’s momentum took a turn. By late afternoon, the commodity had slipped into a three-week low, closing at $90.712 per barrel. This shift was partly attributed to an uptick in the US dollar, which prompted traders to seize the opportunity to cash in on their profits. It’s worth noting that oil had posted impressive gains of over 30% in the third quarter of 2023.
Markets this morning
This morning, UK gas prices have extended their decline, with the front month contract for November delivery leading the way. It is currently trading at 93.40p, marking a decrease of 4.96p from yesterday’s settlement. The front quarter Q1-24 last traded at 118.49p, down 3.11p from yesterday. The prevailing bearish sentiment at the outset of the winter season is noteworthy, as it deviates from the usual market trend. A combination of strong Norwegian supply and weak demand has pushed the NBP prompt market into negative territory once again. The Within day and Day Ahead contracts last traded at 73.00p and 73.50p respectively.