The rerouting of shipping tankers away from the Red Sea caused prices to increase

19 December 2023

Gas Market

The NBP Gas market looked to be continuing its recent downward trend with prices opening below Friday’s close. Jan-24, the front month, opened at 82.5p per therm, and continued to trade lower. However, prices soon rebounded with news that BP and other major freight companies had ceased crossing the Red Sea amid attacks on tankers by the Iran aligned Yemen Houthi militant group. Prices spiked, hitting intraday highs in the early afternoon, with January peaking at 94.00p/th, as the news hit the market. Traders speculated if the shipping restrictions would also impact LNG cargos destined for Europe. However, with fundamentals strong, sufficient gas in storage and mild weather persisting, prices declined just prior to the close, with Jan-24 closing at 88.74p/th.

Power Market

Buoyed by the gains on the NBP, GB baseload power contracts increased in value during Monday’s session. The front season, Summer-24, increased by £3.80/MWh, closing at £79.50/MWh, arresting the decline seen across the two previous trading days. The far curve drew support from increasing UKA and EUA carbon markets. Yesterday marked the final trading session of the Dec-23 EUA carbon contract, and late flurry of trading activity on the contract saw gains of €1.35/tonne, with the contract expiring at €68.92/tonne. Spot and further dated contracts also increased in value with the contracts being supported by a pause in EUA auctions from yesterday until the 15th of January.

Oil Market

Oil prices rallied on Monday, pressured by the risk of supply issues caused by BP’s announcement that it would pause all transit through the Red Sea. The move was prompted by further attacks by the Iran-aligned Yemen Houthi militant group on oil tankers crossing the Red Sea. As a result, BP and other global freight firms are avoiding the Suez Canal and rerouting around the Cape of Good Hope. This could cause a supply squeeze over the coming days and weeks due to the longer shipping route. Also adding to the bullish tone was the news that Russia and deepened its supply cuts earlier than anticipated, reducing exports in December by up to 50,000 barrels per day. As a result of the geo-political issue and the supply cuts front month Brent crude increased by $1.40 from Friday, closing at $77.95/bbl.

Markets this morning

UK gas markets have opened lower this morning trading below Friday’s close. Last traded at 82.45p/th the front month contract has reversed all of Monday’s gains. This follows the news that the US has launched an international naval operation consisting of UK, Canada, France, Bahrain, Norway and Spain to protect shipping routes in the Red Sea. The losses have not been limited to the gas market, with Brent crude prices also reacting favourably to the news. Oil for delivery in February has fallen by 26 cents from last night’s close, last exchanging hands at $77.69/barrel. EUA carbon markets have also fallen influenced by the bearish energy markets. The Dec-24 contract has posted losses of €0.45/tonne thus far.
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