Volatility creeps back into the market as contracts edge higher overall

Since contracts back in February were close to 3-year lows, markets have seen a slight increase over the past 2 months. April has faired in the same fashion as March, as contracts across the near & far curve for gas and power experienced a steady increase throughout the month. Despite a healthy supply picture overall, concerns over Norwegian gas flows and LNG shipments have crept back into the market, as planned and unplanned outages coupled with higher demand for LNG from Asia added bullish sentiments. 

As we dwell further into the summer months and the injection season now in full flow, gas inventories for Winter-24 look set to hit their targets comfortably (90% by November), as storage levels across Northwest Europe were just below 63% fullness, as April came to an end, which was an all time high. As the supply fundamentals look relativity stable despite ongoing concerns with Norwegian gas flows and the lack of LNG coming into the UK and Europe, Longer terms risks from the current wars in Ukraine and Israel pose the largest threats to front seasonal contracts at the moment.

Both Ukraine and Russia have targeted energy facilities as the war looks far from over with any ceasefire very unlikely despite the war starting in February 2022. With that said, there has been several attempts of a ceasefire from the Middle East, as parties from Hamas and Israel met up in Cairo recently. This in turn shows that the war could see and end sooner rather than later, as pressures from the international community increases. With supply disruptions the main concerns on the back of the war, oil prices have remained flat come the end of April and sat comfortably below the $90/Bbl mark. Prices have experienced monthly highs and lows throughout April, as developments in the Middle East added much of the volatility into oil prices.

Much of the gains have been pushed back as global demand concerns and the lack of movement on interest rate cuts add bearish sentiment into markets. As the summer continues, focus on the wars will still persist, but supply fundamentals such as demand for LNG from Asia and exports coming into the UK and the continent, will increasingly become the main drivers as we approach the winter months. 

Market Outlook

As temperatures start to steadily rise as we move deeper into the summer months, demand will typically reduce which will enable the replenishment of gas inventories for the next winter period. As storage levels across North West Europe sit at all time highs for this time of the year, Europe should be set to hit their targets comfortably. With that said, the lack of LNG exports coming into the UK and Northwest Europe has been a slight concern especially with the added pressure of higher levels of demand for the fuel from Asia, amid warmer conditions.

Geopolitical risks are still largely apparent, as concerns over supply disruptions will linger. With recent attempts of ceasefire in the Middle East, there are some hopes that an end to the war could be near, which in turn could add some bearish sentiment back into both the near and far curves. With signs of gas production at the Freeport facility in the U.S looking to increase, there is some scope that LNG exports could improve over the coming months, but with higher demand from Asia and persistent concerns from the war, the outlook will remain somewhat bullish in the short-term despite the supply picture remaining healthy.