A complicated Summer for gas prices….

Even in the darkest times we should force ourselves to carry on doing what we see as our job.

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Nothing affects commodities as immediately and strongly as a significant external factor. And the way European gas market has been evolving in recent years just proves it. If in early 2020 prices found themselves at the mercy of the rapid spread of coronavirus, two years later geopolitics has come to the fore.

Obviously traditional gas price drivers, such as weather forecasts or LNG cargo arrivals, are no longer relevant during the periods of big shocks. And the movements at hubs become increasingly dependent on market sentiment and expectations, which are shaped by a continuous flow of news. Early in the week the TTF Month-Ahead closed at an all-time high of about €230/MWh on the ICE Endex exchange, but in just three trading days the contract fell to €130/MWh.

With geopolitics coming into play, the front-summer products rose drastically when compared with contracts for delivery throughout the next gas winter. No surprise, given growing concerns over security of supply right in the period when European gas stocks should be prepared for another heating season.

Additional support to the Summer 2022 contract was provided by the European Commission’s proposal requiring the EU gas storages to be at least 90pc full by 1 October each year. Should the plan be adopted, it can give a sort of impetus to injection demand, as shippers will need to accumulate more than 70 bcm in the next six months, to reach that goal. Whether the task is manageable is a different matter.

Rising demand for spot LNG cargoes from Asian importers amid restocking is another issue that European buyers should bear in mind while entering the injection season. Added to this is the annual maintenance on Norwegian fields scheduled between late April and mid-June, with the weather still being of importance for heating-related consumption in the first half of Q2.

Source: Yakov Grabar (LinkedIn)