Markets surge on Ukraine invasion fears

Thursday 3rd February 2022

We have seen another fortnight of volatility on the energy markets, with power and gas surging then retreating on conflicting drivers.

Monday 24th saw a massive surge in prices due to fears over what looked like an imminent invasion of Ukraine by Russia. Prices did not however push on from this upturn, possibly due to the more coherent response coming from NATO members, lessening the prospect of war. Whilst the threat remains, it is perhaps not as likely as before. Crucially from an energy perspective, the impact of any conflict on gas prices and Russian gas flows is not as pressing as it was. This is mainly down to two drivers – much milder, windier weather across Northern Europe meaning gas storage reserves are not drawn upon as much as would be typical for this time of year. There are also regular shipments of Qatari LNG docking in Europe, lessening the reliance on Russian flows. Hence last week’s surge has all but reversed now and markets are a lot more benign.

There are still massive bullish drivers in the market beyond the pending conflict in Eastern Europe, such as the ongoing French nuclear safety issues. However, the longer the milder weather persists, and the longer the NATO-Russia stand-off continues, so more sustained bearishness may gain a foothold, reversing further the effects of the energy crisis.