Market Insight

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Mon, 29th Jul ’24

GAS

  • Seasonal Forwards remain down on the month, but up on the week/3-months/6-months ago – see chart.
  • Markets saw very marginal gains last week off the back of supply tightness fears – primarily attributed to the lingering doubts over Freeport LNG’s production outputs.
  • That having been said, over the weekend the numbers coming out of the facility look to have improved a little.
  • Whilst prices opened this morning unchanged from Friday’s close, they’ve since firmed amid concerns that Middle East tensions are about to escalate.
  • Likelihood of further conflict have been heightened following more missile strikes in the region.
  • Israeli authorities have claimed that at least 11 people were killed and 37 others injured in the northern part of the occupied Golan Heights on Saturday – Hezbollah is being blamed, though has yet to claim responsibility.
  • The increased tension and fears over further impediment to LNG transit through the region is adding more risk premium this morning.
  • By way of limiting upside, the UK is set for some above seasonal norm temperatures over the coming days – mitigating gas-for-power burn.
  • Looking at the big picture, with demand low, and supply comfortable, replenishing gas stocks is not posing any problems.
  • Europe remains on track to achieve 100% storage levels by Winter-24 (early Oct ’24) – though LNG delivery remains tight against a backdrop of sustained high temperatures across Asia (and the associated cooling demand).
  • European storage is at 84% fullness versus the 5-year average of 72%.
  • On the hedging side, we’re now on the other side of Summer-24 – with 120 days having elapsed, and 64 remaining.
  • Clients with open volumes for Winter-24 are increasingly scaling-in so as to avoid any loss of prevailing value.
  • Monthly Day-Ahead averages so far this month are on target to achieve 75p/therm (or circa. 2.5p/kwh excluding non-gas).

ELECTRICITY & CARBON

  • Looking to the continent, European near-term delivery prices rebounded on Friday, mainly supported by the expected drop in renewable generation this coming week.
  • On the Carbon markets, EUA prices increased slightly on Friday, trying to maintain the uptrend that started from 22nd July in the wake of rising gas prices.
  • Back in the UK (and despite EUA’s technical repositioning), UKAs (UK Carbon Allowances) continue to fall (as indicated by RSI divergence and confirmed descending trend channels) – now trading at circa. £39/tn.
  • At the time of writing, our electricity generation mix is bearish in nature today with renewables contributing 43%, thermal at 12% (gas and coal) and low carbon at 29% (nuclear and imports).
  • Monthly Day-Ahead averages so far this month are on target to achieve £69/mwh (or circa. 6.9p/kwh excluding non-energy).

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