Market Drivers October 2023
The business energy market can be challenging to understand.
Every month, our specialists create a Market Drivers report to keep your business updated.
We have highlighted Bearish drivers, expected to contribute to the market lowering, and Bullish drivers, expected to contribute to the market going higher.
Bearish Drivers
– North West Europe storages are forecast to end December at 482TWh, a record high level for the time of the year. In the outcome of the bearish and central weather in Q1, this starts to pose a bearish risk for a strongly oversupplied situation in SUM24
– Demand destruction across domestic and Industrial sectors continues. The weak macro environment continues to provide strong headwinds to any recovery in Eurozone manufacturing.
– Norwegian exports in November already hit the highest level observed last winter indicating strong flexible production levels. With little maintenance scheduled in December, Norwegian production is expected to increase further.
– French nuclear capacity expected up 7GW month-on-month and 17GW year-on-year.
– THE is planning to sell up to 37TWh in GY23 injected during summer 2022. This can start adding up to 300GWh/d of supply to the market already from December.
Bullish Drivers
– Notable ramp-up in heating demand in the UK and NWE as we move into the colder part of the winter.
– Geopolitics concerns remain elevated with the Middle East conflict escalation and contagion fears roiling commodities markets. The Japanese cargo ship seized by Yemen’s Houthi Rebels in the Red Sea in November could provide further support to prices.
– Potential for weather forecasts to be revised lower than current forecasts leading to stronger than envisaged heating demand.
– Risk of unplanned outages on NCS and UKCS.
Currently, gas and electricity contracts are trading slightly lower compared to the end of October and are both trading at monthly lows. We have seen a notable slowdown in volatility as geopolitical risk, although still present due the conflict in Gaza, has ebbed with the fears of contagion not materialising yet. Prices have been weighed down by ample gas storage in Europe and the UK, no real increase to usage yet as we head in to winter. We are also seeing high levels of renewable generation and continued demand destruction adding to the stable market.
November has seen European gas storages sit near 100% full. Europe is now stocked better than ever but the market is yet to be fully convinced that we can survive the winter period if the weather turns cold and tension in the middle east escalates.
The latest weather outlook indicates that we should see close to normal temperatures for December, milder than last December last year. With demand destruction remaining in play at levels close to the last winter this should keep the market stable for now.
December is forecast to be lower for LNG supply to north west Europe and the UK, 7% lower than last year when a cold spell required higher storage. Global LNG supply availability should improve next month supported by the end of Qatari maintenance. Resumed operations at the Israeli Tamar field can also add to a healthier supply picture. On the other hand, Northeast Asian LNG demand typically sees an increase as we move into the peak winter months.
Looking ahead the sentiment remains bearish and we should see prices continue to trend down in December. Having said this, without any real
clarity to the weather forecast for early next year, prices may react adversely if colder temperatures are expected.
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