Market Insight

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Thurs, 7th Mar ’24

GAS

  • Markets have found support over the last week, but the bigger picture is one of front-end prices being 31% below those offered 3-months ago (see chart).
  • It’s been sideways price action this morning reflecting a balanced market enjoying some well-earned equilibrium with neither bulls nor bears managing to break out of rangebound trading conditions.
  • Looking down the Seasonal Forwards (Summer-24 to Winter-28, nine seasons), the most expensive contract is Winter-25 currently offered at 84.48 p/therm.
  • The least expensive contract is Summer-24 at 67.540 p/therm – a 29% variance between these two extremities.
  • Prices dropped off a little at yesterday’s close against a backdrop of lower demand due to improving temperatures and wind outputs (limiting gas-for-power generation).
  • It could be argued that lower LNG imports into the UK have been behind marginally higher prices this last week – but more likely, markets have fallen to a fair price and now they’re treading water/testing support and resistance levels.
  • Withdrawals throughout February were modest, and European inventories are on track to finish Winter-23 with more than 50% left in the tank – currently at 62% versus the 5-year average of 43%.
  • Geo-political risk persists with ongoing shipping attacks in the Red Sea area – though LNG is mostly headed around the Cape of Good Hope.
  • Russia’s flows are still missed, and their absence explains why markets haven’t fallen further (yet).
  • Notably (and a bullish driver), China imported more than 20 million tonnes of natural gas in the first month of ’24 – equating to y-o-y growth of more than 20%.
  • 24 days of Winter-23 remain, and buyers are looking to summer conditioning to further soften Winter-24 offers.
  • Monthly Day-Ahead averages are on target this month to achieve 68p/therm (or 2.3p/kwh).

ELECTRICITY & CARBON

  • Looking down the Seasonal Forwards (Summer-24 to Winter-28, nine seasons), the most expensive contract is Winter-27 currently offered at £78.82/mwh.
  • The least expensive contract is Summer-28 at £60.63/mwh – a 22% variance between these two extremities.
  • Looking to the continent, European near-term delivery prices dropped a little yesterday pressured by improved renewables outputs, milder temperatures, softer fuels and emissions prices, and improved French nuclear availability.
  • Short-covering (buying to close out a sell-position) persisted on the carbon markets alongside the latest COT (Commitment of Traders report) showing only a slight reduction in speculators’ short position versus last week.
  • The upward move however lost its momentum by early-afternoon eventually closing below Tuesday’s settlement.
  • Prices opened lower again this morning off the back of a warmer revision of weather forecasts indicating the short-squeeze may have run out of steam.
  • Back in the UK, UKAs closed marginally down at £36/tn.
  • At the time of writing, our electricity generation mix is bearish in nature with renewables contributing 43% and gas-for-power burn at 22%.
  • Monthly Day-Ahead averages are on target this month to achieve £67/mwh (or 6.7p/kwh).

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