The risk of the Israel-Hamas war escalating to the wider Middle East region is increasing

23 October 2023

Gas Market

Gas prices for much of Tuesday’s session traded at a loss to Monday’s close as the market looked likely to continue its slide. The front month traded as low as 115.45 pence per therm before a brief recovery just after 2pm saw prices move back into positive territory trading in the 122p/th to 123p/th range. A further decline soon gave way to a price rally just at the close, with all curve contracts all being assessed in positive territory. Despite strong fundamentals, including healthy storage at close to 98% fullness and an expected influx of LNG, Tuesday’s session was one of consolidation, as prices, for all intents and purposes, moved sideways as the market adopts a wait and see approach if any escalation of Israel-Hamas war has any wider impact on energy commodity supplies.

Power Market

Rather unusually the GB baseload power market shirked the late rally on gas markets with baseload curve contracts all easing lower on Tuesday. The main driving force behind power’s decline was the fall on both the EUA and UKA carbon markets. The biggest mover was winter-24, with the contract declining by £2.75/MWh to close at £131.00/MWh, pulled lower by the losses particularly on the UKA market with both Dec-23 and Dec-24 contracts down by an average if £2.63 per tonne. On the prompt the Day-ahead contract fell by 44% driven lower by strong wind generation ion the UK that is forecast to remain over 20% above seasonal norms for the remainder of the week.

Oil Market

Oil prices edged higher across Tuesday’s session as the market speculated on the upcoming visit of US president Biden to the Middle East that is likely to issue support for Israel, but also offer a balance to prevent any further escalation in the region of the Israel-Hamas war. Following Monday’s decline, prices recovered slightly adding 25 cents a barrel closing at $89.90. Some support for oil was garnered from a better-than-expected increase in retail sales in September. Helping to cap the upward momentum is the continued positive news emanating from Venezuela with talks between the government and opposition set to resume. Any positive moves form the South American country will go some way towards the US removing or reducing sanctions, increasing global supply.

Markets this morning

The risk of the Israel-Hamas war escalating to the wider Middle East region increased following an explosion at a hospital in Gaza early this morning, with Palestinian and Israeli authorities blaming each other. Jordan has also cancelled the summit it was due to host in Amman between US President Biden and Egyptian and Palestinian leaders. Jordanian Foreign Minister has laid the blame at Israel’s door stating the summit could still happen provided Israel end the “war and massacres against Palestinians”. The impact has been an almost 2% jump on oil markets, while the gas forward market has ramped up by over 4% from Tuesday’s close. Illustrating the gain, the front month contract has increased by 5.70p/th.
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