Gas markets supported by rising LNG and oil prices

Monday 21st June 2021

Energy markets, particularly the October ’21 Annual have seen a return to bullishness in recent days after the drops seem in the second half of May. This comes on the back of conflicting drivers across both gas and power. The most significant factor driving prices up is the delay in gas storage replenishment for the coming winter – whilst European storage injections have started, the storage levels are nowhere near 2020 which is a more pressing issues as post-COVID demand is expected to grow. Another factor affecting the gas (and thus power) price is the reduction in physical gas flows: the normal North Sea maintenance programme has started; Russia flows are limited either through Ukraine or the new Nord Stream 2 pipeline; Asian LNG prices are up, so shipments are diverting to that more lucrative market and away from Europe. Some of the price increase has however been kept in check by the delay to the end of lockdown restrictions in the UK and elsewhere.

The geopolitical slant on energy pricing is interesting at present – Russia does seem to hold a lot of sway with their control or gas flows to Western Europe – this is compromised by their reluctance to transport via Ukraine, but also by US sanctions on the Nord Stream 2 Baltic Sea pipeline to Germany. A possible thawing of US/Russia relations at last week’s Geneva summit may change things. Elsewhere, discussions continue about reinstating the Iran nuclear deal that was cancelled by Donald Trump. Should this be revived, then Iran oil sanctions would probably stop and oil prices could fall. A fall in oil could herald a downward correction in the wider energy complex.