Energy Market Update - 13 September 2024
The UK gas market has opened higher today, with the October front-month contract pricing at 86.70p/th, up by 2p/th from yesterday.
A combination of cold weather, supply constraints, and rising oil prices due to Hurricane Francine are driving the upward trend.
Hurricane Francine disrupted US oil production as Gulf of Mexico facilities were forced to shut down, lifting oil prices by over 2%. Although the hurricane has now weakened to a tropical storm, the temporary impact on global supplies is contributing to market volatility. UK demand is also higher due to below-normal temperatures, which are 6°C lower than average. Additionally, wind generation is lagging by 2m/s below seasonal norms, increasing the need for gas-powered generation.
On the supply side, ongoing maintenance in Norway has further tightened the market, reducing flows to 192mcm/day. This has forced the UK to ramp up storage withdrawals to 76mcm to meet demand. However, bearish factors are expected to emerge next week as temperatures are forecasted to rise above seasonal norms, which could ease demand. Norwegian gas supplies should also increase as maintenance is scheduled to wind down.
Despite the tight market conditions, storage levels across Europe remain strong, with continental gas storage at 93.24%. Two LNG cargoes are expected to arrive in the UK in the coming weeks, which should help ease supply pressures. Power prices have followed a similar upward trajectory, with the UK DA Base trading at £83.73/MWh, reflecting increased gas-for-power demand.
Brent oil prices rose to $71.97/bbl due to the hurricane, while European gas markets remain mixed, with the NBP Front Month contract at 84p and the TTF Front Month at €35. Weather uncertainties and tight gas supplies continue to exert upward pressure on prices.