1) What’s happening in the markets and why?
The UK and European gas markets gained a little towards the end of last week, following a mostly bearish week. This week opened higher amid cooler temperatures, ongoing Norwegian supply curbs, as well as concerns a hurricane on the US Gulf coast could impact liquefied natural gas supply. However sharp losses were seen yesterday falling in line with oil prices and offsetting initial concerns over rising demand from cooler weather and LNG supply from the U.S. Traders also stated the gains were “overdone” and there was likely some profit taking going on. Whilst maintenance in Norway continues to curb supply, flows are stable and are mostly in line with the schedule. Next week warmer weather forecasts should also dampen demand. Finally, hurricane Francine will make landfall today in the US Gulf, but its path has shifted east and should now pose a reduced risk to most of the US’s LNG capacity, forecasts and data showed on Wednesday.
2) What should energy buyers look out for?
Over the next week or two any changes to the Norwegian maintenance schedule could bring additional volatility. Looking ahead, uncertainty over remaining Russian flows through Ukraine, Asian LNG demand and the risk of a colder-than-normal winter will continue to dominate the market.
3) What would you recommend?
Depending on your cover levels, taking some volume now given prices have eased following August’s highs, may offset any further risk premiums over the winter period. However, if you have already taken a significant amount of cover and are comfortable you may want to hold off closer to delivery to try and capture extra value – this will be dependent on your risk appetite.
