There has been a dramatic turnaround in energy prices since the last Market View was issued. Both gas and power have seen prices fall back from the spikes that followed the EDF announcement about their nuclear power stations and the Saudi drone attack. However, prices are not back to where they were at the start of September.

Market bearishness has been driven by an announcement that the component issue in certain French nuclear reactors does not need an immediate fix. Hence there is not the prospect that there might be a series of rolling shut-downs like in 2016. This has vastly improved the energy security outlook for the coming winter across the continent. Oil has also been a key factor in bringing global markets lower: whilst the drone attack caused a massive surge in oil prices last month, the speed at which the Saudis have brought production back on line has meant that prices are now significantly below where they were pre-strike. It should be noted that the strike also served to demonstrate just how much spare capacity is available in terms of US an Saudi storage.

Short-term gas and power were lower in the second half of September due to strong renewables output – the stormy weather from the Atlantic hurricane systems was great for wind generation. There were also several bright days meaning solar generation played a role. As we enter October, so the forecasts have got colder and the traditional heating season starts. There has been some upward pressure on short-term gas due to this, and there may be some knock-on effect on Annuals. However, there is gas storage at record levels across Europe, so this may lessen volatility in the coming months.

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