Increased military activity in the Red Sea has led to Qatar Energy pausing the shipping of LNG via the Red Sea

15 January 2024

Gas Market

NBP gas prices rebounded slightly on Friday, but all contracts were down week-on-week following the losses earlier in the week. Gas prices garnered support from increasing risk in the middle east the spreading or war and unrest in the area. The United States and Britain carried out strikes on Houthi military targets in Yemen following the continued attacks by the group on shipping routes in the Red Sea. The February gas contract increased by 3.19p/th to 79.92p/th, having opened and traded briefly at a discount to Thursday’s close before pushing higher for the majority of the day. Summer-24 also increased, gaining 2.32p/th closing at 78.62p/th. However, the gains were capped by the strong fundamentals. Despite the recent cold weather storage remains 82% full, far ahead of the 5-year average of 70% for this time of year.  Power Market GB baseload day ahead contracts fell on Friday, pressured by an increase in wind generation on the system, although the level of wind on the system still remains below seasonal norms. The decline of £9.75/MWh was limited by the increase in gas prices, and also further maintenance at UK nuclear generators. Half of the UK’s 10 nuclear reactors are currently offline, totalling 3.1GW of baseload power. On the curve baseload prices followed gas prices higher, with the front two months and winter-24 the biggest movers. Winter-24 increased by £1.00 closing at £88.00/MWh, while the front month gained £1.50 being assessed at £77.50.

Oil Market

Following the missile attacks on shipping routes earlier in the week, the United States and Britain went on the counter offensive carrying out air and sea strikes against Houthi militant targets in Yemen. Adding to the uncertainty in the Middle East was the seizing by Iran of a tanker carrying Iraqi oil close to the Strait of Hormuz earlier in the week. The increased military activity in the region added further risk premium to oil prices as the front month Brent crude contract closed at $78.29 a barrel. Oil markets are currently in backwardation, meaning near term contracts are more expensive than contract further along the curve, with oil for delivery in October approximately $1.90/bbl cheaper than the March contract. This illustrates the markets concern for the supply of oil from the oil rich area in the near term and until such a time there is a resolution to the tensions in the region.

Markets this morning

Gas prices are trading lower this morning despite news that LNG shipments are now being impacted by the situation in the Red Sea. Qatar Energy has announced that it is pausing shipping LNG through the Suez Canal while it seeks security advice. If it is deemed to be unsafe to send cargos across the Red Sea they announced that they will divert shipments around the Cape of Good Hope. Despite the risk of delays in LNG reaching Europe gas prices are declining this morning. The front month contract is down 4.07p/th from Friday’s close while summer-24 and winter-24 are both down by over 3.00p/th in early trading.