BP gas contracts reversed all of Monday’s losses amid supply tightness

Gas Market

Gas prices rebounded from Monday’s losses buoyed by a risk of an interruption in LNG deliveries from Qatar following attacks by Houthi Militants in the Indian Ocean. By expanding their attack range outside of the Red Sea, the risk of LNG tankers being disrupted, even those routing around the Cape of God Hope, was increased. Another contributing factor was a reduction in supplies due to maintenance at various Norwegian hubs, which kept the system tight, although long, for the day. There were also unconfirmed reports from the US that Freeport LNG had reduced its draw on natural gas from the system, possibly indicating a delay to full export operations. In its first session as the front month the Jun-24 contract reversed all of Monday’s gains, closing 3.25p/th higher at 71.53p/th. Tempering further gains was muted demand as the result of the warm spell currently impacting on the UK.  

Power Market

The May-24 baseload contract increased by almost 5% on its final session. Buoyed by bullish movements on the NBP gas market the front month contract increased across the session before expiring at £63.50/MWh. The front season also rebounded following Monday’s losses, increasing by £22.70/MWh, closing at £79.25/MWh. The far curve contracts were impacted not only by the increasing gas prices but also by a minor uptick in UKA carbon prices. The Dec-24 carbon price increased by €3.40/tonne, an increase of over 5% day on day. While traders commented the rally was triggered by gas movements, it became clear by the end of the day the contract had found its own support and was increasing under its own momentum.

Oil Market

In its final session of trading, Brent crude for delivery in June declined as the market still held hopes of a ceasefire being agreed between Israel and Hamas. Traders were optimistic of a positive outcome despite comments from Israeli Prime Minister Netanyahu to storm Rafah no matter the outcome of the ceasefire talks, that could have scuppered proceedings. The Brent and WTI front month contracts fell by 54 cents and 74 cents respectively and were also pressured by continued speculation that interest rate increases were on the cards when the Federal Reserve next meets. Inflation and the labour market has thus far resisted the measures taken by the Fed to correct the recent trends, and any increase in interest rates could dent demand for oil.  

Markets this morning

Gas prices have returned to decline this morning amid a strongly oversupplied system. The UK gas system is currently 13.7mcm long as Norwegian flows recover and demand is eroded further due to the warm spell currently affecting the UK. No trades have been completed for Day ahead nor within day via the Spectron traded platform, although the front has traded 1.43p/th lower. Brent crude continues to decline with the new front month, July, down $1.15 on Tuesday’s close. Weighing on the oil price is a strengthening dollar, at a five-month high, ahead of an announcement by the Federal Reserve later this evening.