Despite the continued strong fundamentals gas contracts have rebounded slightly

13 December 2023

Gas Market

The malaise on UK gas markets continued unabated on Tuesday. The markets opened in negative territory, and other than Jan‐24 and Feb‐24 briefly trading higher, prices never looked like reversing the recent downward momentum. Gas fundamentals remain healthy across Europe with European storage sites standing at almost 91% fullness. With drought conditions persisting in Panama impacting on the operation of the Panama Canal, US LNG cargos continue to arrive into Europe en masse. Gas for delivery in 2024 was assessed at 90.34 pence per therm and has plummeted by 28% in a month and down 39% on the peak following the October 7th attack by Hamas.

Power Market

Continuing to track the gas market, GB baseload prices fell to new post‐energy crisis lows. The summer‐24 contract fell by £1.75/MWh closing at £78.00/MWh. Tuesday’s closing price was the lowest the summer‐ 24 contract was assessed since the end of January 2022. Coupled with the declining gas market has been bearish weather signals helping to pull day ahead baseload prices lower. Higher temperatures and increased wind direction helped day‐ahead contract shed £2.75/MWh. EUA carbon traded sideways for much of yesterday’s session. However, buying activity in the afternoon ahead of the Dec‐23 contract’s expiry from the ICE trading platform on Wednesday caused a late up tick as the contract gained 84 cents closing at €68.24/tonne.

Oil Market

Following on from two days of gains on the front month Brent Crude oil contract,the momentum came to a crashing halt. Oil for delivery in February closed at a six month low of $73.24 a barrel, a decline of $2.79 day on day. Economic data from the U.S. showed that consumer prices had increased again. Investors are now confident that the Federal Reserve will not be reducing interest rates in Wednesday’s meeting. Inflation in the States is heading towards the Fed’s target of 2%, however the rate of decline is slowing. This added to the pressure applying to oil markets due to the forecasted slowdown in oil demand growth in 2024. The IEA and OPEC+ both agree that growth will slow, but the rate at which it deaccelerates is a bone of contention between both bodies. OPEC+ are more bullish on growth figures, despite implementing supply cuts in order to try to stimulate global oil markets.

Markets this morning

The gas system has opened 10 mcm long amid strong Norwegian supply and healthy UK continental shelf production. Despite the continued strong fundamentals gas contracts have rebounded slightly this morning following the three sessions of losses. Jan-24, the front month, last traded 1.66p/th higher due to increased buying interest instigated by the recent declines, and the breaching of the 90.00 pence per therm level. Oil has retained its bearish tone this morning due to the oversupply worries and ahead of the Federal Reserve meeting today. On its final day of trading on the ICE platform the Dec-23 carbon price is continuing to trade strongly with the last trade seeing the contract post €1.19/tonne gains.
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