Middle Eastern geopolitical tensions are once again influencing gas prices

Gas Market 

Following aerial attacks by Israel on targets in Lebanon the risk premium associated with an escalation of the conflict in the Middle East pushed NBP gas prices higher in Monday’s session. There are fears that an escalation could lead to attacks in multiple regions and impact gas supplies, most notably LNG cargos. Prices were also supported as officials in Ukraine and Azerbaijan refused to confirm reports last week that a deal had been reached for Ukraine to transit Azerbaijani gas in place of the expiring Russian contract. As a result, the front month contract settled at 87.10p/th representing an increase of almost six pence over the last five trading days. On the prompt, prices increased supported by falling forecast temperatures for the rest of the month as well as an unplanned outage at the Gullfaks gas field and Sleipner Riser.

Power Market

GB Baseload Day ahead contracts dipped slightly from Friday’s close however prices remain supported by low wind generation for the week ahead. Day ahead prices at £81.74/MW are currently over double the monthly lows due to strong support from gas prices and a lack of wind generation on the system. On the curve baseload prices stepped higher tracking the bullish movements on the NBP gas market. Gas prices were supported by the uncertainty created by events in the Middle East. EUA Carbon markets were supported by the rally in European gas markets but are also finding support independent of energy markets. The surrender deadline for 2023 compliance is approaching and buying activity is also propping up prices.  

Oil Market

Crude oil prices took a step higher in early trading on Monday following airstrikes by Israel on hundreds of Hezbollah targets in Lebanon. The increased attacks by Israel on Lebanon raised concerns that Iran may become more active the conflict in the Middle East. If that were to happen there is increased risk to oil exports being impacted. The Brent front month contract increased by 68 cents to $75.17 a barrel before prices began to retreat. The bullish sentiment was tempered by poor European economic data that fueled fears for global demand. The push and pull of supply and demand worries continued for the rest of the session before as prices oscillated close to Friday’s close before Brent front month eventually settled lower at $73.90/bbl.  

Markets this morning

NBP curve prices are trading lower this morning following the two consecutive sessions were gas prices increased. The UK system is well supplied and flows from Norway have increased with further increases expected over the rest of the week as more infrastructure returns from maintenance. Crude oil markets have stepped markedly higher in trading this morning as oil companies scramble to evacuate oil platforms in the US Gulf of Mexico ahead of a potential hurricane hitting the area in the coming days. Storm Helene is expected to grow in size as it travels across the Gulf gaining strength from the warm waters.