Pricewatch l 22 August 2024 I Gas Matters Today

Energy and carbon prices fell across the board on Wednesday, taking European natural gas prices even closer to where they were before Ukraine made its incursion into the Kursk region of Russia on 6 August. A further fall in crude oil prices took month-ahead Brent to its lowest level since the first week of 2024.

In continental Europe, the September TTF contract was down 2.3%, from USD 12.38/MMBtu on Tuesday to USD 12.09/MMBtu on Wednesday. The price was rising gently in early trading on Thursday.

In the UK, September NBP was down 2.6%, from USD 11.92/MMBtu to USD 11.61/MMBtu. Like TTF, it was moving upwards on Thursday morning.

The falls come despite ongoing concerns about possible damage to transportation infrastructure around the Sudzha hub just inside Russia, but supply and demand fundamentals are starting to reassert themselves as time goes by without incident. However, the market remains tense.

In EUR/MWh terms, the September TTF contract remains above where it was on 6 August but at the same level it reached on 1 August, days before Ukraine’s incursion into Kursk. In p/therm, NBP is lower now than it was on 1 August.

Political logic

Ukraine’s motivation in making its surprise incursion into Russia is seen by one expert on land warfare – Dr Jack Watling, Senior Research Fellow at the Royal United Services Institute – as a hedge ahead of the US presidential election in November.

Speaking to the BBC, he said: “Ukraine is having to hedge against two very different lines of policy coming from the US after an election.

“In one of those lines of policy, they may see much less military technical assistance from the West, which means that negotiations might be on the table. They don’t want to be in a position where they are only having to give things up. They also want to force the Russians to make concessions to trade for something.

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“The challenge they have is that they are now stretching their own limited forces across even more front. This is militarily quite dangerous but there’s a very clear political logic to what the Ukrainians are doing.”

In Asia, the October JKM LNG contract fell again, reversing more of the 13.6% jump in the month-ahead price that happened last week as the September contract expired. A 1.0% decline took the price to a close of USD 13.79/MMBtu on Wednesday.

The steeper fall in TTF widened the TTF-JKM spread by 9% to USD 1.70/MMBtu. There are, however, signs that Indian and Chinese buyers are delaying purchases because prices remain elevated.

In the US, Henry Hub continued to lose ground, down 1.0% to USD 2.18/MMBtu, as autumn approaches, raising expectations of Goldilocks weather – cool enough not to require air conditioning but warm enough not to require space heating.

Crude oil prices appear to be responding to economic concerns not just in China but increasingly in the US, with their fourth consecutive declines.

Brent fell 1.5% to USD 76.05/barrel, just a whisker above the closing price of USD 75.89/barrel on 2 January this year and could close even lower today. WTI was down 2.8% to USD 71.93/barrel, its lowest close since 10 January.

Yesterday’s weekly petroleum status report from the Energy Information Administration showed that US commercial crude oil inventories were down by 4.6 million barrels week-on-week to 426 million barrels, about 5% below the five-year average for this time of year.

WTI, NBP, TTF and EU CO2 data from ICE. Henry Hub, JKM and API2 data from CME. Prices in USD/MMBtu based on exchange rates at last market close. All monetary values rounded to nearest whole cent/penny. Text and graphic copyright © Gas Strategies, all rights.

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