Middle East Conflict: Gas Prices Surge on Day Five as Strikes Continue

Morning Market Report

‍

• Attacks spread on fifth day of US-Israeli war on Iran
• Israel says it has begun a new wave of strikes on Tehran
• Israel strikes Lebanon as tensions escalate with Hezbollah
• US President Donald Trump says ships could escort oil tankers through Strait of Hormuz
• Iran close to choosing new Supreme Leader, official says
• U.S. forces continued a round-the-clock assault on Iran and Israel mounted a "broad wave" of strikes on Wednesday targeting Iranian missile sites and air defence systems in a campaign that a top American commander said is ahead of the "game plan"
• This morning, at the time of writing, we are starting to see markets slowing in their upwards movement and a decline on many products.

‍

Natural Gas

Market Insights

‍

Today marks the 5th day of regional conflict in the Middle East with attacks ongoing and showing no signs of slowing down. Prices continued to climb on Tuesday, whilst this morning the front month NBP contract hit 156.01p/th but has since pulled back to 136.34 p/th at time of writing, which is approximately 4.50 p/th lower than Tuesday’s closing price.

‍

The main developments overnight are centred around safeguarding vessels transiting through the Strait of Hormuz. President Trump has referenced government backed insurance guarantees for all maritime trade transiting through the Gulf, whilst also stating the US Navy could begin escorting vessels through the waterway. President Macron has also posted on social media to say France are leading a coalition to secure the Strait.

‍

Fundamentally, the milder weather continues to keep demand well below seasonal normal this week. The UK system is 23mcm long at time of writing, with total demand at 213mcm, 70mcm below seasonal normal. Longer dated forecasts show above seasonal normal temperatures could remain until the end of March, which would ease storage withdrawals in comparison to levels seen earlier in the quarter. EU storages are at 29.90% fullness at time of writing.

‍

‍

Electricity

Market Insights

‍

European power markets continue to price higher, following gas markets higher on the conflict in the Middle East. The UK Baseload front month contract is pricing at 100.11 £/MWh at time of writing, relatively flat to Tuesday’s close. The continental markets are not up as strongly as the UK market, with the equivalent German Baseload contract pricing at 102.00 €/MWh at time of writing this morning, up 1.15 €/MWh day on day and 28.45 €/MWh since Friday. With limited storage capacity and reliance on gas burn for power generation, the UK power market is more susceptible to prices moves in the gas markets.

‍

Wind speeds continue to hold below seasonal normal this week which is adding some support. However, the milder temperatures is keeping power demand muted and strong solar across Europe is providing a welcome boost to renewable generation, counteracting the loss in wind generation. Brent oil is pricing at 83.70 $/bbl at time of writing, up around 14% since Friday with the market holding onto gains, despite the focus on security through the Strait of Hormuz from world leaders overnight.

‍

Latest Price

‍

Latest Gas & Power Annual Chart

‍