What’s happening in the markets and why?
Over the last couple of weeks, whilst the volatility day on day has been quite impressive, overall the markets remain rangebound. With the change in front month yesterday, the UK and European gas markets saw a noticeable drop in prices due to healthy fundamentals whilst the market still remains quite cautious on the back of geopolitical events.
Fundamentals in the UK and Europe are looking pretty comfortable with mild weather forecasts, full storage levels, step up in LNG send outs and strong winds over the coming days increasing renewable generation. With regards to the Middle East there are hopes that the war will not escalate any further than it already has with the first images of people leaving Gaza into Egypt after a deal to allow the critically wounded out for the first time since the start of the Israel-Hamas war three weeks ago. Closer to home Finland’s prime minister said China was cooperating in the Finnish investigation of the Hong Kong-registered NewNew Polar Bear vessel’s role in the Oct. 8 damage to the Balticconnector pipeline.
What should energy buyers look out for?
Continue to keep a close eye on the developments in the Middle East as risk premiums can be easily built in should the situation spread into neighbouring regions. With the markets focusing once again on fundamentals we would also suggest keeping a close eye on all things affecting supply and demand.
What would you recommend?
Review your positions if you have left volume open in the winter season. Looking forward to next year, depending on your risk appetite you may want to consider taking some cover as a level of risk premium for the front season has eroded once again.
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