Energy Market Update - 29 October 2024
UK and European energy markets experienced mixed movements as lower crude oil prices and expectations of stable gas flows tempered earlier gains.
Natural gas prices in the UK fell across the curve, with the NBP Day-Ahead contract settling at 106.70 p/therm, erasing some of last week's increases. This decline is linked to softer Brent crude prices, which dropped by nearly 5% to $71.42/bbl. Israeli strikes over the weekend did not target key oil infrastructure, reducing the geopolitical risk premium in the market. Norwegian gas flows increased to 334 mcm/day yesterday and are forecasted to rise further as remaining maintenance concludes, bolstering market supply confidence. Additionally, European gas storage remains high, at 95.31% full, which has further eased price pressures.
In the power market, UK Day-Ahead prices rose to £107.89/MWh. This uplift is attributed to ongoing nuclear outages, which have lowered output to its lowest level since March, and subdued wind generation forecasts. The anticipated return of Torness 1 in early November may offer some relief, but with other units remaining offline until late November and December, the reliance on gas-fired generation is expected to persist. Demand for Combined Cycle Gas Turbine (CCGT) power generation is likely to stay elevated amid lower-than-average wind speeds projected over the coming weeks. UK power's clean spark spreads saw some gains, indicating increased generation margins.
Brent oil prices experienced a sharp decline, reflecting diminished risk following targeted military action in the Middle East. Despite concerns over potential escalations, markets reacted to the absence of direct energy infrastructure attacks, causing Brent’s December contract to close at $71.42/bbl. In parallel, the EUA December 2024 contract softened slightly to €66.40/tonne, in line with broader market sentiment. Meanwhile, coal prices for delivery next year remain steady at $124.46/tonne, reflecting stable demand outlooks.
In the outlook, cooler weather is expected to align more closely with seasonal norms in early November. This development, combined with reduced wind forecasts across Europe, is likely to sustain CCGT demand in the near term. Upcoming LNG cargoes to the UK, with three confirmed shipments and additional arrivals in Northwest Europe, will play a critical role in balancing supply as winter approaches.