Oct24 Energy Market BriefMixed Market Directions

In September, the majority of tracked GB wholesale gas contracts saw losses in the month but with day-ahead gas contracts the exception. However, a higher level of price risk remains baked into longer-dated contracts, with underlying future supply uncertainty still remaining – as the West continues to adapt to a supply environment with minimal Russian gas with the end of the Ukraine transit deal in December approaching.

Despite this, on average, seasonal gas contracts from winter 24 to winter 26 were 8.1% lower in September compared with the previous month. Winter 25 gas prices represented the highest average contract price in September at 97.75p/th.

Competing market fundamentals were reflected in price movements in September. We attribute the predominantly bullish price movements at the day-ahead level, particularly in the latter half of the month, to periods of lower wind generation resulting in higher gas-for-power demand, in tandem with below-average temperatures bolstering gas-for-heating demand alongside this.

Moreover, we saw market volatility towards the end of September following reports that Ukraine had agreed to transit Azerbaijani gas to Europe. However, these reports were unconfirmed, triggering concerns over security of supply after the current 5-year deal with Russia’s Gazprom ends on 31 December. Furthermore, we saw concerns surrounding a potential reduction to US LNG output due to Hurricane Francine acting to provide an upside for gas prices. Due to the EU importing the majority of its LNG from the US, any potential supply interruptions provide a bullish sentiment for the market. Bearish market drivers remained consistent in September overall, acting to offset price rises across longer-dated contracts, with strong EU gas storage levels acting as a solid foundation to support supply for the upcoming winter period.

Day-ahead gas prices rose in September, up 2.6% to average 86.30p/th. On the contrary, front-month contracts were down 10.2% on average from August, with October 24 averaging 86.86p/th and November 24 at 93.99p/th. We also saw the front-month contract return to trading at a similar level to the day-ahead contract, lowering from the notable premium seen in August.

Day-ahead power prices followed their gas counterpart and moved higher in September – up 26.6% on average to sit at £78.05/MWh.

Day-ahead power rose to the highest level since December 2023 on 2 September at £92.94/MWh, finding bullish influence from the 580MW Heysham nuclear reactor 1 going offline, in tandem with reduced wind generation levels acting to further tighten system margins and increase the requirement for more expensive forms of power generation.

All seasonal power contracts recorded losses however, down 7.3% on average from winter 24 to summer 26 Front-month power contracts (October and November 24) shared the price direction of their gas counterparts, falling 9.8% on average to sit at £73.25/MWh and £83.94/MWh, respectively.

The price of Brent Crude fell 7.6% to 72.91/bl, with prices going below $70.00/bl for the first time since August 2021, reaching the lowest level of $69.49/bl on 10 September. A survey released by China’s National Bureau of Statistics found that manufacturing activity reached a six-month low, reigniting concerns about demand growth for Brent Crude oil.

However, stronger losses were limited by a decision from the US Federal Reserve to lower its benchmark interest rate by 0.5%, concerns about US oil production from Hurricane Francine and Hurricane Helene and ongoing oil disruptions in Libya.

Elsewhere, carbon markets in the UK and Europe registered opposing movements. The EU ETS fell 8.2% lower to €65.49/t whereas the UK ETS rose 1.3% to £40.48/t. Carbon prices across both the EU and UK ETS schemes are likely to remain volatile, given the unpredictability attached to gas supply into Europe for the remainder of 2024 and into early 2025.