In the context of deliveries during this winter, the bullish surge we reported on in our last update has softened somewhat this week, with UK gas and power prices spending much of the last week rangebound. New long-term highs have still been set on an intraday basis, but for now bullish momentum has ebbed slightly.
The same cannot be said for contracts delivering during Summer and Winter 2027, and into 2028, which by Monday 18th had climbed for a fourteenth consecutive session. Eye catchingly, both Summer and Winter 28 gas have now traded above the psychologically significant 100p/th for the first time since October 2022. This speaks to a market in which traders are no longer treating the loss of Qatari LNG supply as a short-term disruption, but as an enduring reality.
Brent crude reached $110/bbl on Tuesday 20th October, its highest in five months, while Europe’s key gas benchmark, the TTF, touched the €90/MWh level in the same session before settling back to €88/MWh. It’s likely that the €90/MWh level represented a target for speculative participants looking to ‘buy low, sell high,’ with the impact of the brief sell-off that followed being exacerbated by news from the Middle East.
That sell-off saw front month gas fall 9p/th in the late afternoon, on reports that Qatar and Pakistan had put a compromise proposal to Washington and Tehran, covering nuclear inspections and the release of frozen Iranian funds. Prices rebounded the next morning once it was clear neither side had confirmed it, and the reported terms made no mention of the Strait of Hormuz or of LNG transit. As we’ve now seen many times during the conflict, unsourced or unverified claims of peace progress can stretch credulity but still weigh on prices, and this was another instance.
In the Strait of Hormuz, the Singapore-flagged container ship GFS Pride sank after being struck on Tuesday 13th October, all twenty-one crew evacuated safely, with a second Singaporean vessel hit the next day. The International Maritime Organization has now documented more than one hundred confirmed incidents and at least twenty-four seafarer deaths since the conflict began. Iran says vessels are striking naval mines on unauthorised routes; US Central Command says the Strait has been cleared of mines and that ships are being hit by projectiles.
On the LNG front, competition from Asia has intensified, the Platts JKM benchmark rising above $30/MMBtu for the first time since December 2022 as Chinese and South Korean buyers returned for spot cargoes. Every cargo they take is one that does not reach Europe, and Morgan Stanley has raised its forecast for European gas this winter to €90/MWh.
Closer to home, the government approved the Jackdaw gas field in the North Sea, where construction was already complete and only consent was outstanding. Energy minister Miatta Fahnbulleh said it could supply homes and businesses from the end of this month, lifting domestic gas production by around 6% at its peak. From a supply perspective, this is a welcome but not game-changing development, and having been widely trailed by the government in advance, is arguably already priced in.
European gas storage stood at 74.62% on the morning of 21st October, the lowest for the date since the series began in 2011, against 82.75% a year earlier. Net injections have all but stopped this week, with France, Austria, Czechia, Hungary, Poland and Slovakia already drawing gas back out, and modelling suggests the continent turns to net withdrawals within the next fortnight, storage peaking just above 75%.
In the UK, wind generation is forecast to peak near 16GW between the 23rd and the 26th, against a seasonal normal closer to 10GW, before falling below 3GW at the turn of the month just as temperatures drop below the 30-year normal. The combination of cold and still weather is the risk worth watching. As of Wednesday 21st, Norwegian supply has eased to around 324mcm/d on extended maintenance at Troll.
On the speculative side, investment funds added 24.1TWh of bullish positions on the TTF in the week to 16th October against 5.5TWh of bearish ones, lifting net length to 193.1TWh, its highest since mid-September. Net length, the funds’ bullish bets minus their bearish ones, has risen for two consecutive weeks after six weeks of falls, indicating the funds that spent September taking profits have potentially recycled them into fresh long positions. In a nutshell, if hedge funds are ‘the smart money,’ then the smart money is still backing gas and prices to rise still further over the coming weeks.
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