Economic woes in China dominated Tuesday’s oil trading with the front month contract falling to its lowest level since late July.

08 November 2023

Gas Market

Following the decline on gas markets on Monday, with curve contracts as far as Q4-2025 reaching new 20-day lows and their lowest point since the attack by Hamas, prices consolidated on Tuesday. Prices never looked like extending the previous day’s losses as gas markets opened in positive territory, even if only marginal in some cases. The Q1-24 contract opened at 126.25p/therm, trading to a low of 112.5p/th in the early afternoon which was above Monday’s close with the contract eventually settling at 125.08p/th.  Yesterday marked a month since the attack by Hamas on Israel and the markets have released the majority of the risk premium it had accumulated over the previous month. Prices are hovering near 20-day lows, and are now less than 10% above per-attack levels, having traded at a 30% premium in the early days of the war. Focus has moved from the risk of contagion to the healthy market fundamentals.

Power Market

The small increase on gas markets coupled with a strong UKA carbon market helped GB baseload contracts stabilise following Monday’s sell off with contracts for delivery for 2024 retracing over half of the previous session’s losses. Q1-24 stepped £3.25 higher closing at £114.00/MWh having lost £5.00 the previous day. Pushing prices higher was the average increase of over 5% across the UKA carbon markets for 2023 and 2024. Meanwhile on the EUA carbon market prices continued their recent decline with allowances being offloaded by industries that are struggling with output and requiring less allowances than expected earlier in the year.

Oil Market

Brent Front Month Crude oil fell across Tuesday’s session to its lowest level in over three months. The contract for oil delivery in January closed $3.57 below Monday’s close at $81.61 per barrel, the lowest closing price of a front month contract since 24 of July. Weighing on prices is the concern for global demand, with Chinese economic data at the epicentre of the collapse. Despite recent data showing China had increased its imports through October both form a month-to-month basis and year to year, their export data for goods continues to decline. Oil imports increased 13.52% compared to October 2022 and a modest increase of 1% from September. However, exports from China shrank by 6.4% from year ago levels. Also adding to the concern is the under-utilisation of the country’s refineries, despite the increased imports of oil, leading to fears of a drop in demand later this year or early 2024.

Markets this morning

In early trading near curve contracts have already reversed half of yesterday’s gain, with the front month down by 1.22p and the Summer-24 last exchanging hands at 115.50p/th a decline of 1.53p. Norwegian flows to both the UK and the Continent remain strong and have increased by 10 mm all being directed to the UK market. The front month oil contract is continuing its decline with the market less concerned about Middle East supply disruptions and more concerned with global demand. The economic data from China yesterday could also signal a slowing global economy with the demand for Chinese products and services falling.
Find out more about our Commercial Energy Services