Energy Market Trends: June 2023

Gas

Continued volatility was seen on across UK and European gas markets over the past month. The expectation of increased Asian gas demand for cooling and higher Asian gas hub prices provided support.

We’re yet to see Asian buying ramp up and activity on the Asian spot market remains subdued. Furthermore, increasing Qatari exports are expected to provide further supply to Europe. Prompt markets are expected to soften on the improved wind outlook and returning Norwegian capacity.

We’re now past the peak of early summer maintenance but unplanned outages and project extensions remain a key risk factor in the short to mid-term. The Dutch government have now confirmed the Groningen gas field will shut in October 2023. The market impact is fairly neutral as the field was outputting a minimal amount of gas and the closure has been caveated with the possibility of reopening if a gas crisis emerges this winter.

Oil prices have been rangebound since May with support from political instability and US inventories down while interest rate hikes continue to provide price resistance. Worries around Russian supply supported oil during early Monday trading, following the weekend's escalation with the Wagner mercenary group, however, gains were wiped out by the close as macro-economic worries regained control.

Power

The theme of volatility continued on UK power markets as adjustments from the recent upside continued. Contracts across the board remain supported shallow river Rhine levels, heavy Norwegian maintenance which continues to limit gas flows to the UK and strong Asian LNG prices fuelling fears of more U.S LNG heading East. Looking ahead, the fundamental supply picture looks less tight this week as biomass units return and wind output is set to remain at or above norms for the remainder of the run.

French nuclear capacity is also back above the 60% mark which will provide improved supply margins as renewable output on the continent is expected to be subdued. Cooler temperatures will also provide bearish pressure as demand for cooling should reduce for the remainder of June and into July.

Carbon prices started the week on the front foot with poor continental renewable forecasts. Contracts quickly lost steam as the BoE shock 0.5% rate rise pressured equity markets down. This week signals are neutral with continued macro-economic worries likely offsetting upside from the lack of Polish auction this week.

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