Markets have returned to bearishness following the sharp upturn seen after the US attack on Qasem Soleimani at the beginning of the month. The muted response from Iran has been interpreted as a de-escalation, and Iran’s expected belligerence decreased further with the shooting down of the Ukrainian airline. Whilst Brent crude had surged in excess of $70 intraday, the index is now back around $65, a similar level to early December. The threat to energy security has decreased; nevertheless, the situation highlighted the effects of Middle East tension across markets that was much more common a decade ago. Whilst there is more divergence between oil and gas prices now than was historically the case, a threat to physical supplies coming from the Persian Gulf (oil and LNG) will always bolster prices.

Gas and power have also eased over the last fortnight due to prolonged above-average temperatures. This has meant that gas heating demand is down and gas storage remains well above 2019 levels. Gas generation is also down as the series of Atlantic weather systems has given massive wind power output. Forecasts are somewhat lower for the next fortnight, but nothing to indicate a significant reversal in market sentiment is due.

Back