What’s happening in the markets and why?
Yesterday was the first day of trading for 2024 and it started off in a similar pattern to what we have been seeing in the last few months with a sell off across Europe and the UK. UK gas and baseload front month lost about 6% from previous close. Although there was concern with continuing Red Sea attacks affecting shipping through the Suez Canal the market focused on a comfortable fundamental situation. However, losses may be capped on the prompt contracts going forward as we are expecting temperatures to steadily decline from today onwards with the coldest day expected on the 9th January. After the 9th the temperatures are slightly better which suggests a limited duration of colder conditions. At the same time wind generation is expected to fall increasing gas for power in the UK and Europe. On the supply side Norwegian flows remain steady and a flurry of LNG cargoes are expected to arrive to the UK and Europe which should help considerably. European storage levels also remain at highs for this time of the year with 86% fullness suggesting there is enough supply to meet the additional demand over the next few weeks.
What should energy buyers look out for?
Continue to keep a close eye on supply/demand fundamentals, especially the weather forecasts.
What would you recommend?
With markets easing its worth looking at your energy budgets and your level of risk appetite. For some businesses with the drop in prices they may want to lock out additional volume as it provides price certainty, whilst others may seek for further price optimisation in which case holding and looking closer to delivery may be an option. If you do opt for the latter its always worth noting, whilst the risks to the upside have eased any adverse events can cause prices to spike and therefore making an informed decision is important.
