September 2024 Energy Market BriefReturn to a Bullish Pricing Environment

In August, we returned to a bullish pricing environment compared to the previous month. Both shorter-term and notably longer-term gas contracts registered bullish price movements from July, stemming from a volatile gas market across the month.

On average, seasonal gas contracts from Winter 24 to Winter 26 were 8.8% higher in August compared with the previous month. The most significant average price rises were concentrated across Winter 24 to Summer 25, up 11.5% on average across the two seasons.

The influence of bullish near-term market fundamentals set a strong upward price direction for the forward curve to follow. The sensitive political landscape surrounding a potential reduction to Russian gas flows through Ukraine continued to be a dominant market force in August, with increasing Russian attacks on Ukrainian energy infrastructure alongside tensions in the Middle East providing an upside for gas prices. Moreover, August saw Liquified Natural Gas (LNG) spot market prices reach 111.07p/th on the 16 August, the highest level seen since December 2023, following outages across Australian and Malaysian gas processing facilities, tightening the global supply and influencing both European and GB wholesale gas prices due to the role of LNG as a marginal price setter.

As a result of the aforementioned bullish drivers for gas prices, we saw day-ahead gas rise 10.9% from July to average 83.15p/th. Front-seasonal contracts also shared collective average price growth, with September 24 up 15.9% to 92.99p/th and October 24 rising 15.2% to average 96.29p/th. Concerns about potential losses in Russian gas supply to Europe caused the September 2024 contract to trade notably above its day-ahead counterpart, throughout the month.

Despite the gains in gas contracts, August saw day-ahead power prices drop 16.8% on average to £58.78/MWh, opposing their gas counterparts. These losses were the result of frequent periods of strong wind generation, acting to reduce the reliance on more expensive forms of power generation. Day-ahead prices fell to a low of £18.00/MWh on 8 August, finding influence from strong wind generation projections, leading to five instances of negative pricing within-day on the 9 August. This trend continued into the latter stages of the month, following the arrival of Storm Lillian, leading to periods of notable wind generation on the system.

However, the day-ahead contract was an outlier in the overall trend for power prices across the forward curve, with the strong upward momentum on longer-term domestic gas prices setting a bullish direction for power prices to follow.

Front-month power contracts, September and October 24, shared the price direction of their gas counterparts, subsequently rising 10.4% on average to sit at £79.09/MWh and £80.10/MWh, respectively. Likewise, seasonal power contracts from winter 24 to summer 26 registered gains, up 6.6% on average.

Brent crude oil fell month-on-month, averaging $78.87/bl, down 6.0%. This came following reduced factory output from China and continued decreases to refinery output levels, outlining China’s economic recovery is still below expected levels. Moreover, prices found downward influence from concerns surrounding a potential recession in the US, and global markets by extension.