Following last week’s shallow trough in prices, UK gas and power have edged up again over the last few trading days. Front month gas – now July 26 following the turn of the calendar month – has gained 8p/th since the recent low on 27th May, with front month power following a similar but less pronounced trajectory. Q3 26 and Winter 26 for both gas and power show evidence of a slow uptrend over the last six weeks, amid creeping risk premia associated with low gas storage volumes and tighter competition for LNG with North East Asia.
European gas storage fullness continues to tick upwards, now at 41.5%, up from 38.8% this time last week. However, backwardation during the Summer 26 and Winter 26 periods continues to disincentivise commercial gas storage injections, and the North East Asian LNG market continues to trade at a premium to Europe’s key benchmark, the TTF. As we move into Europe’s key JJA (June, July, August) storage injection window, hotter weather in Asia – and the resulting increase in cooling demand – continues to present a challenge to Europe’s gas injections ahead of Winter. According to the World Meteorological Organisation, an El Nino – a weather pattern that raises global temperatures and changes rainfall – is expected to start imminently, with some forecasts indicating a particularly strong event this year. This would increase the risk of droughts or torrential rainfall over the coming 9-12 months. Six-week temperature forecasts for the major population centres of North East Asia currently suggest extended heatwaves in Hong Kong, Seoul and Shanghai, with Tokyo and Beijing also seeing slightly above normal temperatures.
In the Middle East, the stalemate in the US / Iran conflict continues. On 3rd June, US President Donald Trump suggested that there could be progress in negotiations with Iran very soon, telling reports at the White House that “it might not happen… it could happen over the weekend.” However, on Wednesday Iranian Foreign Minister Abbas Araghchi said that “no tangible progress” has been made in negotiations to end the war, and that while lines of communication were still open, warned that any attack by Israel on Beirut would trigger a “full-scale resumption” of the conflict.
The latest Commitment of Traders report shows investment funds paring back their long positions on Europe’s key gas benchmark, the TTF. As of week ending 29th May, funds were holding 402TWh in longs compared with 415TWh the week prior. Conversely, funds increase shorts from 134TWh to 140TWh over the same period, bringing net long position to 262TWh. Even this reduced net length still equates to one of the largest net long positions on record, indicating funds positioning to capitalise on expected further price increases.
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