WHAT IMPACTED ENERGY PRICES IN OCTOBER 2023?

TOP 3 FACTORS AFFECTING ENERGY PRICES

• Concerns of the war in the Middle East spreading adds bullishness into contracts
• Milder weather expectations push back on bullish sentiments as well as a strong supply picture
• Oil prices fall despite geopolitical risks
  

October was a month full of unpredictability’s, with markets experiencing higher levels of volatility due to wider global concerns. The month of October has left prices in somewhat of a bearish trend now we have entered into November. Power contracts on the near curve and front seasonal saw some index’s hitting double figures with November -23 dipping below the £100/MWh and Summer-24 also just sitting above that mark.

Longer term contracts both on power and gas have remained relatively rangebound, despite the volatility we have seen across the month especially amongst prompt index’s. The latest tensions in the Middle East brought concerns around the war spreading and potentially disrupting the flow of LNG and oil as regions close by are key exporters. This brought much of the bullish sentiment which had offset the strong supply picture we already have in the EU and UK.

If the Hamas-Israel conflict was to escalate the impact it would have on the winter period would be minimal considering the current gas storage levels, and as we continue to meet demand year on year without the reliance on Russian energy the longer term outlook remains bearish as a whole. With that said given the current climate, the war in Ukraine is still ongoing which can still pose a risk along with the conflict in the Middle East if this was to also continue. This is likely to add some bullish sentiment in contracts further out on the curve. With current temperature forecasts suggesting a milder outlook for the latter part of November & the start of December, Summer-24 & Winter-24 contracts have seen bearishness feed into prices but remained rangebound overall due to bullishness from the geopolitical risks. The damage to the subsea gas pipeline in Finland had led to some longer-term security concerns as it was damaged and deemed as sabotage but was later revealed that it was an anchor from a ship passing by.

This also supported some of the volatility in contracts but reiterated that markets are still very much in a sensitive state. Oil index’s experienced similar levels of volatility throughout the month as the conflict in Israel prompted fears that neighbouring regions could get involved impacting the global supply, in an already tight supply. As the focus shifted between interest rates and the conflict in the Middles East, prices overall have fallen and ended the month around the $87/Bbl mark. 

Market Outlook

October was a month dominated by the current geopolitical risks we are seeing in the Middle East, which had meant volatility had crept back into markets. The main concerns were surrounding the disruptions of LNG and oil from neighbouring regions as the war intensified. In an already sensitive market, contracts did see gains across the curve on both gas and power contracts.

Concerns of the war spreading have eased and due to an extremely strong supply picture with storage levels nearly at capacity and Norwegian flows robust, markets look set to follow a bearish trend which is likely to be supported by the latest forecast of temperatures being milder than initially expected. Weather models have suggested a milder end to November and the start of December which could suggest storage levels will remain robust for Q4, and as LNG imports & Norwegian gas flows remain healthy.

Overall, the current fundamentals will sway towards a bearish outlook for the remainder of 2023 for now, but with the latest geopolitical risks, markets could shift in the opposite direction or limited any further losses.