• High Asian gas hub prices keep LNG cargos heading East, with just 1 LNG cargo reaching UK shores in July
• Oil prices found strength on a weaker global supply picture, but rising virus cases ultimately pressured prices down on month
• Outlook for winter remains concerning with low storage levels and Russia's decision to book no additional Q4-21 capacity last week

The shorter-term picture remained dominated by gas supply concerns in July. Increasing Asian gas hub prices, due to high demand for cooling and storage replenishment, continued to incentivise LNG cargos East. In fact, less LNG reached UK shores in July, than in January when Asian gas price premiums last kept LNG away from Europe. To further exacerbate supply concerns, a major planned maintenance project on the Troll field has restricted Norwegian gas flows to the UK, with additional capacity restrictions due to unplanned issues. The maintenance, due to end on 2nd August, will now run until at least 5th August.

Temperatures sat close to or above seasonal norms for most of the month, with a particularly warm period in the 3rd week of July, which increased demand for cooling. Wind output remained subdued with output failing to breach the 1GW mark for 10 days during the month. Medium range storage levels remained a very real concern ahead of the winter season. Whilst storage levels roughly doubled in July, overall levels remain at multi-year lows. With a similar picture on the continent, along with Gazprom’s failure to book additional capacity through Ukraine for Q4-21, Europe’s winter gas supplies seem more dependent than ever on the commissioning of Nord Stream 2. July saw the US and Germany reach a deal with regards to completion of the pipeline, effectively ending the previous American administration’s efforts to block completion, and boosting hopes of increase gas flows through continental Europe for at least some of the winter 2021 period.

Supply concerns ahead of the winter period continued to drive front seasonal prices during July. Win-21 gas and power prices gained 14% and 8% respectively during the month. Rising global coronavirus cases, along with increasing lockdown measures in some Asian countries, saw oil prices lose momentum mid-month. Although, prices quickly recovered with US inventories posting weekly draws and confirmation of increased production from OPEC+ countries still lacking. Prices have again dipped in recent days as coronavirus concerns seem to be trumping concerns around the undersupplied market.

An expected reduction in auction capacity for August saw carbon prices climb through July. Strong gas markets also continue to support the commodity, as high gas prices could incentivise generators to fuel switch. Strength on oil markets also supported prices.

Market Outlook

The outlook for the remainder of summer remains bullish. Temperatures are set to sit above norms for August, with wind output forecast to sit below norms. Additional demand for cooling and a poor renewables outlook would support shorter term prices. The dire gas storage picture, coupled with increasing competition for LNG cargos, will continue to support curve prices. Furthermore, potential for bullish carbon prices in August could add to the upside. Some gains could be mitigated if global virus cases continue to rise, however, any impact will likely be minimal due to the proximity of winter. Further maintenance projects are planned on Norwegian gas infrastructure throughout August and September, with no LNG cargos currently scheduled to reach UK shores in August.

Backwardation is still in full play across gas and power markets. Fixed clients with October 2021 renewals should look to sign off as soon as possible. 12 month contracts are recommended due to the current high position of markets. Alternatively, clients should select a longer-term flexible strategy to take advantage of any emerging opportunities to secure volume further ahead.