In a rollercoaster week since our last update, gas and power markets have seen four-year highs, huge intraday volatility and a strong selloff. UK gas set fresh highs for the conflict in the first half of the week, with the front month clearing 250p/th and Europe’s key gas benchmark, the TTF, breaching €100/MWh for the first time since the 2022 energy crisis, before an abrupt reversal left prices lower than where they started.
All this occurred despite any material change in the supply and demand picture. Instead, what moved the market was a run of reports emanating from Doha about a mediated settlement, none of them confirmed by either Washington or Tehran. These reports arrived into a market holding the largest bullish position of the conflict so far and therefore vulnerable to any hint of peace.
UK gas for December delivery opened at 230p/th on the morning of 4th November, 5.3% below the level at the time of our last update, having peaked at 258p/th on Friday 30th October. The November contract expired on Thursday 29th October at 242p/th. Further out, the first quarter of 2027 stood at 225p/th and Summer 27 at 162p/th, down 5.9% and 7.4% on the week. Power followed the same path, with the first quarter of 2027 at £183/MWh against £189/MWh a week earlier. The TTF, having cleared €100/MWh on Wednesday 28th October, has fallen back to €93/MWh, while Brent crude eased to $104/bbl.
The sharpest session came on Tuesday 3rd November, when the front month swung through a 32p/th range, trading as high as 246p/th in the morning and as low as 214p/th in the early afternoon. The move followed a report in the pan-Arab outlet Al Araby Al Jadeed that Washington had approved a draft memorandum of understanding presented to Iran by Qatari mediators. Senior Iranian officials told Reuters shortly afterwards that a deal remains far off and that US demands are excessive.
Diplomacy has nonetheless been busier than at any point in months, with Iranian Foreign Minister Abbas Araghchi saying Iran and Qatar had drafted a proposal to reopen the Strait of Hormuz within two days of an agreement meeting Tehran’s conditions, down from the seven days set out in September. An earlier Qatari draft was rejected outright by a senior Iranian official, and the conditions themselves are unchanged: an end to the US naval blockade, the lifting of oil sanctions and the unfreezing of Iranian assets.
Despite the ongoing diplomacy, the US struck Iran’s Qeshm Island at the mouth of the Strait, which US President Donald Trump later confirmed to Fox News as a “minor attack” which “wasn’t war.” Conversely, Iran’s Foreign Ministry responded that it considers itself in a state of war.
The US midterm elections, held on Tuesday 3rd November, delivered both the House of Representatives and the Senate to the Democrats, with Mr Trump telling Fox News that “I think a part of it was Iran.” While Mr Trump’s domestic power may have been curtailed by loss of the House and Senate, the US presidency enjoys more leeway in foreign policy matters, and we note with caution comments from Trita Parsi of the Quincy Institute, who argued pressure to escalate may now increase rather than ease, since “The political cost has already been paid.”
In Hormuz itself, the Qatari LNG carrier Al Mayeda was struck in the Gulf on Friday evening, despite Iranian authorities having approved the voyage hours beforehand under safe passage arrangements negotiated by Pakistan. That the attack seemingly ignored the approval of the voyage is significant; safe transit agreements are only relevant if they are abided by. Perhaps surprisingly given the bullish surge during that month, LNG transits ran at around 30% of pre-war volumes through October, the highest level since the start of the war. While Qatari and Emirati exports recovered to half their October 25 level though, none of it reached Europe.
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Closer to home, the gas withdrawal season has begun as the weather cools. European gas storage stands at 74.56% with daily withdrawals now well above injections. Wind generation is forecast to collapse to around 2GW from Friday through the weekend, against a seasonal normal nearer 10GW, with temperatures falling to around 7°C over the same days, and that combination of cold and still weather remains the key risk of the winter.
On the speculative side, investment funds cut their net length on the TTF from 207TWh last week to 175TWh this week, mainly as a result of funds trimming their long positions from 383TWh to 355TWh, with short positions largely unchanged. We should note that the Commitment of Traders report comes with an in-built lag and does not capture activity during this week’s selloff.
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