Market direction mixed despite Middle Eastern tensions

Markets across the curve on both Gas & Power have been mixed overall throughout the month of July. Gas prices across prompt contracts have edged higher overall despite the supply outlook looking largely healthy. Gas storage across Northwest Europe continues to be on a steady incline and on course to be at full capacity by the end of the summer months (target 90% by November). 

Markets across seasonal indexes faired in similar fashion to the near curve contracts, as gas prices edges higher, with power prices falling. Overall prices still remained relatively rangebound as contracts continued to trade within a tight range. With the latest concerns coming out of the Middle East and the war in Ukraine still apparent, the risk to the supply outlook will remain somewhat uneasy despite the fundamentals going into the winter months looking strong.

As gas storage levels continued to be at record levels for this time of the year and injections steady, winter-24 and 25 both crept over the 100p/therm mark, as the threat of longer-term disruptions re-surfaced with the latest geopolitical tensions amid the wars in Ukraine & Israel. Muted LNG imports also added bullish sentiment, as the LNG plant in Texas continues to recover from ongoing repairs and the shutdown amid hurricane Beryl. Exports from the region have been muted for a while now, but gas production has steadily resumed, with expectations of exports to ramp up in the coming months, which in turn will ease some of the pressures of higher LNG demand coming from Asia.

On the wider commodity complex, oil prices throughout July have experienced some volatility as demand concerns and summer expectations offset one another. Overall oil prices were down by around 6%, as weak economic data from China, and stronger inventories from the U.S offset concerns from the Middle East and demand expectations from the summer. 

Market Outlook

As we approach the latter stages of the summer period, some would suggest markets haven’t quite fallen as expected. With storage levels in Northwest Europe in a very strong position and the general supply outlook relatively healthy, despite some concerns surrounding LNG imports, winter preparations are on course to meet the intended targets with plenty of time to spare. Therefore, there is some optimism that there could be signs of bearishness coming into prompt and far curve contracts. As temperatures are also forecasted to sit above norms in the coming weeks, demand will be reduced adding further bearish sentiments into markets.

With that said the latest concerns from the Middle East and the continued high demand from Asia for LNG will likely push back on any potential losses in the short-term for the time being. Increased demand on the network will also add a premium into prices as winter hedging proves to be stronger at this time of the year. It is likely that markets will continue to trade in a tight range over the coming weeks, as traders will keep a keen eye on developments in the Middle East and the outlook on LNG.