Natural gas prices continued their upward trajectory on Tuesday as the market weighed up several issues and how they could impact supply and demand. At the forefront is the Israeli-Hamas War, and the potential for escalation in volatility in the Middle East. Adding price support is the shutdown of the Israeli domestic gas field Tamar, deemed to be within rocket range of the Gaza strip, while the threat of strike at the Australian LNG facilities is also an unwelcome distraction. Adding fuel to the fire is the situation in Finland, and the discovery of a leak in the pipeline connecting the NATO member countries, Finland, and Estonia. On Tuesday the Finnish President stated that the damage to the pipeline was damaged by “outside activity”. While no assertions have been given to who could have caused the damage, there were suspicions in the market. As a result the front month contract increased by 15.42p to 124.71p/th, while Q1-24 spiked as high as 141.3p before closing at 140.731 pence per therm.
Baseload power futures tracked gas prices higher on Tuesday as the NBP had concerns regarding supplies as a result of a number of different events. Q1-24 increased by 9.5% to close the session at £129.70/MWh. Conversely Day-ahead prices fell by £12.75/MWh, despite an increase in day ahead gas prices. Wind generation is 10-20% above seasonal norms in the UK, while a reduction on the EWIC interconnector with Ireland reduced demand on the UK system. Spot EUA carbon was little moved yesterday, while the EUA and UKA carbon products for Dec-23, Dec-24 and Dec-25 all took direction from the volatile gas markets to step higher. The bullish carbon market was also an upward pressure point for baseload power prices.
The impact of the events in Israel initially caused brent crude prices to rise on Monday, however a more considered approach was taken on Tuesday. Front month Brent crude fell by 90 cents yesterday to close at $87.30 a barrel, as the market returned to assess the fundamentals. The key driver remains the precarious balancing act between supply and demand, with demand being the focus of the day. Traders are still wary of stalling demand due to a slowing global economy while keeping a watching brief on events in Israel. Israel itself produces very little oil, however markets are worried that an escalation could impact oil production in the Middle East, particularly in Iran a long-term supporter of Hamas. While there is no proof that Iran aided Hamas’ actions, any discovery of such could result in the US imposing further sanctions on the country.
Markets this morning
The NBP gas market, while down on yesterday’s close, is choppy this morning oscillating in a two to three pence range. The front month November, traded as low as 116.10p/therm, but has been range bound between 119.00p/th and 121.00p/th for much of the morning since. Q1-24 too has taken a step lower by 3.5p/therm. Prices on the prompt gas market remain strong trading well above 100.00p/therm as the supply concerns are creating a cautious approach for traders. Oil markets are relatively flat in early trading, with the December contract up by only 18 cents on last night’s assessment.