July 2023 Energy Market BriefPre-Winter Market Jitters

Despite registering an overall increase to prices across shorter dated contracts, we continue to observe an environment in which prices are lower than those observed at the tail-end of 2022 – which saw gas, power, and wider international commodity markets rise to prominent highs.

It is pertinent to highlight that prices have decreased significantly from the record highs experienced across 2022. However, following restricted gas supply from the Norwegian Continental Shelf acting to tighten system conditions, and as a result of continued outages across several large Norwegian gas fields, shorter-dated gas contracts registered gains. This bullish sentiment was further supported by bolstered GB demand levels following significantly above-average temperatures, and reduced wind outturn during periods of increased demand for cooling appliances.

Across the month, we saw day-ahead gas register a 4.6% gain month-on-month to average 78.57p/th. Similarly, front-month contracts registered price increases, up on average by 5.6% when compared to May, with July 23 seeing a 6.1% rise to 77.63p/th, and August 23 growing 5.1% to 80.05p/th.

Conversely, seasonal gas contracts from winter 23 to summer 25 were, on average 6.9% lower in June when compared to May – with some risk removed from these contracts as European gas storage levels remain well stocked. More notable price gains across front month contracts were offset by the notable stockpiles of European gas, which currently sit at 76% at the time of writing – much greater than the 58% fullness registered during the same period last year – boosting gas supply amid reduced Norwegian output.

Similarly, both front-month power contracts registered gains, as July 23 rose 1.6% to £89.30/MWh, and August 23 grew 3.9% to £87.91/MWh. However, much like its gas counterpart, seasonal power prices saw a collective downward movement – dropping 7.9% on average. Winter 23 continues to trade as the premium market, despite seeing a 9.7% drop to average £127.43/MWh.

Brent crude oil continued to fall month-on-month, averaging $74.96/bl – down 1.2%. This came despite OPEC+ announcements that supply would be cut by one million barrels per day enacted from July, tightening global markets – in tandem with unexpected gains in US crude inventories and expectations of further interest rate hikes from the US Federal Reserve.

Overall price gains were limited by poor Chinese economic performance, a declining number of operating oil and gas rigs in the US, and a higher-than-expected rate hike from the Bank of England.

LNG prices reversed previous trends seen last month and recorded an 11.8% gain as competition between Europe and China for the procurement of LNG has been reignited as Asian buyers return to the market, prompted by this year’s lower prices, in tandem with Europe needing to ensure sufficient cargoes are arriving to continue storage injections.