PRICES ACROSS THE CURVE CONTINUE TO FALL AMID STRONG SUPPLY PICTURE

Gas and power contracts across the curve continued where they left off in January and saw significant losses throughout February. As the summer months drew closer and demand for this time of the year were particularly low, the supply fundamentals remained unchanged amid ample gas inventories and solid gas supplies via Norwegian pipeline flows and LNG imports.

As the majority of the winter has seen a significant downwards trend amid milder temperatures and healthy gas inventories, the outlook for the Q2 & Q3 will remain largely bearish for the time being. As gas inventories remain high, the summer months will be a period of recovery to prepare for the winter months come October. With storage expected to be still around the 50% mark as we move into April, injections won’t be as aggressive as previous years due to comfortable level of gas. With that said, the long-term geopolitical concerns will still be apparent as the war in Israel is still ongoing, and any potential ceasefire looks to be off the books at the moment, despite attempts from the U.S to bring fighting to a halt.

The escalation of the conflict in the Red Sea is also a reminder that possibilities of the war spreading is still apparent which could still hinder supplies further down the line. But with demand from Asia seemingly on slight decline and exports from the U.S still strong, the impact could be minimal (LNG). Further out on the commodity complex, has seen oil prices remain relatively rangebound throughout the month, despite the ongoing geopolitical risks. The attacks from Houthi rebels has added a lot of the bullish sentiment in Brent/Crude markets, but demand concerns have limited further gains, as weak economic data from large importers such as China and further delays on interest rate cuts in the U.S continue push back on gains.

Therefore leaving prices hovering above the $80/Bbl mark for the majority of the month. The IEA (International Energy Agency) had initially forecasted 2024 to be a year of increased demand despite faltering economies, but recent suggestions of OPEC+ looking to make further production cuts could be an indicator that demand is still not where it is expected to be.

Market Outlook

As markets across both the gas and power curves show significant losses throughout the winter period, with February being no exception, the outlook is likely to remain bearish as a whole. With gas prices heading close to 3-year lows, the supply outlook for the remainder of the winter looks extremely comfortable, especially with ample storage which is current sitting above the 62% mark.

With recent unplanned outages at some Norwegian plants which added some upside into contracts, this is likely to be one of the few risks that will have any meaningful impact on markets for both the prompt and seasonal curves in the short-term. Though with that said, nominations overall have still been strong for the majority of 2024 and is likely to stay that way for the rest of the winter period.

Wider risks from the Middle East will still be a concern as LNG shipments may still be impacted with delays, and with no clear view on when this will end, concerns will still be evident. With that said, supplies of LNG coupled with Norwegian gas flows continued to be robust, and with steady wind generation, the supply picture going into the summer months will remain comfortable. Therefore, it is still apparent that there is still room for further downside.