• Prompt contracts edge lower as fundamental outlook remains healthy
• LNG arrivals into the region continue to remain strong
• Brent Crude ends the month lower on global recession fears
  

Seasonal contracts continued to trade in a sideways channel throughout April. This is largely due to the potential upside risk for contracts ahead of the Q3 and Winter period which continued to be balanced by the strong fundamentals. On the bearish side, LNG arrivals continue to healthy and global supply continues to ramp up, which is exacerbated by the full return of the Freeport LNG facility in the US. In addition, the healthy storage levels for the time of year mean that expectations are the storage target of 90% full by 1st November will be comfortably hit, and stocks could even be close to capacity ahead of Winter.

There is also increased fears of a global recession, which would weigh significantly on demand, as seen by the heavy reduction in the Brent Crude price throughout April, as economic concerns persist in the US and Eurozone, which have far outweighed a heavy production cut by OPEC+ at the start of the month. All of these factors are currently being balanced by the potential bullish drivers.

Concern remains over temperatures in Q3; if these mirror what we saw across Europe & Asia last Summer, and are extremely warm, we would expect to see increased competition for LNG, further increasing LNG prices and gas & power prices. In a similar vein, Chinese demand continues to increase, following the end of their Covid restrictions at the end of 2022. If this continues, we could see China turn to the LNG market to top up their generation in order to meet demand.

Market Outlook

If market conditions remain as they are, expectation is that prompt contracts will continue to see downside, particularly if temperatures continue to remain in the sweet spot where it is warm enough to reduce LDZ demand, but not too warm where cooling is required. Maintenance is expected to commence at Norwegian gas fields and for French Nuclear which may provide more volatility for Day Ahead contracts than we have seen for April, however, unless there is a significant change to the fundamental outlook, we would not expect this to have a significant long term impact on the prompt contracts unless this is unexpectedly sustained for a prolonged period.

Seasonal contracts are expected to continue to be range bound, although we may see some downside ahead of the start of Q3 if injections into storage are strong and it looks as though stocks will be fully replenished ahead of Winter. Longer term risks around Q3 and Winter still remain and are expected to largely be based on an increase in LNG demand, whether this is due to an increase in temperatures for Q3 or a continued increase in Chinese manufacturing output.

Meteorologists have also said that it is is very likely an El Niño weather front will occur this year. This can cause dry hot temperatures for the Summer & Southern hemisphere or dry and extremely cold temperatures of the Winter & Northern hemisphere. If this does arrive, this too is expected to cause an increase in global demand.