Gas Market
British wholesale gas prices dropped sharply at Wednesday’s open after a ceasefire between the United States and Iran was announced. Tehran signalled it would pause its blockade of the Strait of Hormuz allow safe passage for vessels, provided attacks against Iran ceased, easing immediate supply concerns. Despite this, the geopolitical backdrop remained fraught. The front month NBP contract rebounded from an intraday low of 107.18p therm as reports indicated that LNG cargoes had yet to resume transit through the strait. The May 26 contract ultimately settled at 114.25p per therm, marking its lowest close since 2nd March. The prompt market also moved lower, pressured by weakness along the near curve as well as bearish weather fundamentals. The Day ahead contract shed 17.50p day-on-day to end the session at 113.50p per therm.
Power Market
UK baseload curve products declined on Wednesday, tracking the downside exhibited by the UK gas market following the announcement late on Tuesday of a two-week U.S.-Iran ceasefire. The front month contract fell by £9.80/MWh by the close to settle at £90.20/MWh. Well above average wind and solar production forecasts weighed on the prompt market, with the Day ahead contract shedding 20.8% day-on-day to end the day at £88.15/MWh.
Price movements across European carbon markets on Wednesday were muted despite sharp losses across the wider energy complex following the ceasefire news. Dec 26 European Allowances gained €0.28 day-on-day to settle at €71.86 a tonne.
Oil Market
Oil prices fell back below $100 per barrel on Wednesday after the United States and Iran agreed to a two-week ceasefire, contingent on the immediate and secure reopening of the Strait of Hormuz. Anticipation of the strait resuming operations eased supply concerns, as accumulated oil inventories were expected to flow through the vital shipping route once again. The agreement appeared fragile however, with conflicting reports from both sides fuelling volatility throughout the session. The May 26 Brent contract fell to an intraday low of $90.40 a barrel before rebounding, as Iran maintained that the Strait of Hormuz was still closed, while U.S. officials reported an increase in shipping activity. The front month Brent contract ultimately settled at $94.75 a barrel, marking a $14.52 decline and its lowest close since 23rd March. Meanwhile, the front month West Texas Intermediate (WTI) contract declined by $18.54 day-on-day to settle at $94.41 a barrel.
Markets this morning
UK wholesale gas prices have made modest gains so far this morning following yesterday’s sharp losses. Despite Tuesday’s two-week ceasefire announcement, Iran has stated that the Strait of Hormuz will remain closed unless the U.S. withdraws its “aggression”, while Donald Trump has insisted that U.S. forces will remain in the region until Iran fully complies with the “real” agreement. Israeli attacks on Lebanon yesterday have added further uncertainty to the fragile ceasefire. As tensions continue to simmer and with a huge amount of conflicting reports at play, the front month contract last went through at 117.39p per therm, a 3.14p gain on yesterday’s close. Crude oil markets have responded similarly to the ongoing volatility, with the May 26 Brent contract increasing by $3.11 since last nights close.
