Some of you may be wondering if the gains seen in the market over the last couple of weeks seem justified given the fundamental picture in the UK and Europe. I am too questioning this. The markets are citing the same narrative for some time – geopolitical risks from the Middle East, Russia/Ukraine transit deal, LNG demand from Asia, Norwegian maintenance, winter concerns regarding weather and so on. However, as it stands demand from industry remains relatively muted, Norwegian flows are pretty much back, weather forecasts are predicting a slightly cooler winter than last year but in line with normal levels, tensions in the Middle East have eased from an energy point of view and demand from Asia seems to be simmering off. Storage levels are at 95% fullness and forecasts suggest exiting winter with around 45%. So, if fundamentals are okay and even the oil markets have eased why are gas prices still so high? Looking at the CoT report, investment funds have seen an increase in activity over the last couple of weeks indicating speculators are one of the reasons for the push up market prices.
Today Goldman Sachs Group Inc. warned of downside risks to prices that have recently surged to this year’s high. They have the potential to nearly halve from current levels should the market continue to get more Russian gas than expected, according to analysts at the bank. Goldman’s base-case scenario is that Russian fuel flowing through Ukrainian pipelines will stop once a transit deal between the two nations expires at the end of this year, analyst Samantha Dart said in a note. “Any deviation from the status quo would imply higher Russian supplies vs consensus and, hence, lean bearish global gas prices,” she wrote.
