Gas Market
Wholesale UK gas prices continued to ease on Tuesday as optimism grew over a potential end to the U.S.-Iran conflict, despite lingering uncertainty surrounding the details of the agreement and the prolonged process towards Friday’s scheduled signing. Expectations of a rapid return to near-full Qatari LNG production also boosted incentives for storage injections, adding further downward pressure. The front month contract declined by 1.61p to close at 99.40p per therm, its first sub-100p settlement in more than two months. The prompt market showed more modest losses, driven by a gradual rise in temperatures expected through the rest of the week as well as a minor rise in wind and solar power generation levels. The Day ahead contract shed 0.38p to settle at 102.60p per therm, while the Spot market remained broadly unchanged, settling at 103.50p per therm.
Power Market
GB baseload near curve contracts were mixed on Tuesday, with the front month contract extending the previous days losses, while August and September posted gains. The July 26 contract shed £0.80/MWh, following the bearish trajectory shown by the UK gas market, to settle at £92.40/MWh. A modest rise in wind power generation, coupled with warmer temperatures, weighed on the prompt market. Day ahead fell by £6.23/MWh to close out the session at £102.63/MWh.
European carbon markets displayed modest losses by Tuesday’s close, largely driven by the weakness across the energy complex caused by the U.S. – Iran agreement to end the conflict. However, losses were limited after Britain and the EU confirmed a July 22nd date for a summit that’s expected to include an agreement to link carbon markets.
Oil Market
Crude oil prices declined further on Tuesday, extending losses from Monday after reports over the weekend that the U.S. and Iran had reached an interim agreement to end the conflict. The prospect of oil supplies resuming through the Strait of Hormuz continued to weigh on prices. However, shipping activity remained constrained, as operators awaited assurances on safety, including the clearance of mines and other navigational hazards before resuming transit through the strait. Further details of the interim deal emerged on Tuesday, including reports that Iran would be permitted to resume oil exports, adding additional downward pressure on prices. Broader market concerns also weighed on markets, including uncertainty surrounding China’s economic outlook, persistent inflationary pressures, higher interest rates, and renewed calls for a peace agreement between Russia and Ukraine. The front month Brent contract shed $4.21 to settle at $78.96 a barrel, a new 3-month low.
Markets this morning
With the geopolitical outlook largely unchanged, wholesale UK gas prices are trading a touch lower so far this morning. The front month contract last went through at 98.60p per therm, showing a 0.80p discount to yesterday’s close. Temperatures are well above normal and are expected to continue to rise over the coming days, which, combined with strong renewable power generation levels, should mitigate any prompt gains. Crude oil markets have also steadied this morning, weighing up the impact of potential strong near-term demand to replenish depleted inventories against the International Energy Agency’s warning of a looming supply glut. The front month Brent contract last went through at $79.10 a barrel, up just 14 cents from last nights close.
