October's Trading Insight
Below is an insight into October’s gas market price trends – here are the headlines;
- Prices continue to recover as several bullish factors hit the market at once, but tail off toward end of month.
- Near curve prices most affected, with discount to further out contracts tightening.
- Temperatures close to normal, but wettest month on record in the UK see’s demand persist above SND.
Since the lows of summer, the rally that began in August continued through much of October, with a number of bullish fundamental changes coming to the market, particularly within LNG, to lift prices. Not only have we seen a cold, wet transition from summer into winter here as lockdown restrictions have relaxed hastening demand recovery, but the emergence of a La Nina weather event increased the likelihood of a cold winter in Asia leading to a flurry of buying activity from Asian importers through the early weeks of October, and with this heightening demand outlook came higher prices. Moreover, further stormy weather continued to affect US supply only serving to further tighten the short-term LNG market. By the end of the month, spot Asian LNG prices had reached a 20 month high. We also saw LNG shipping rates reach a fresh 12 month higher, further increasing the prevailing market price, which was not only driven by the robust demand for shipping but also restrictions at the Panama Canal raised shipping costs to Europe, with a consequence of making shipment of LNG to Europe less economical relative to Asia, further raising UK and European prices. By the end of the month, however, bearish influence returned to weigh on the market. Lockdown’s returning in Europe and the likely economic effects of these again hit the energy demand outlook, leading to a sharp drop off in oil with other energy markets including gas following suit. Further to this we have again seen a swift recovery in US LNG production following the latest round of disruption, so the general short-term market outlook by the end of the month appeared looser than it did early on.
12, 24 & 36 Month Pricing
Looking our 3 standard terms in isolation, it is clear how much of the bullishness was concentrated at the front end of the curve, with the effects of many of the supply issues expected to be isolated primarily to the current winter relative to further out. As such, near curve prices saw sharp increases, which tightened the 12m price discount to 36 from almost 3p/th early in the month to 0.16p/th by the 23rd.
The Month Ahead – November 2020
- November has begun as October ended, with prices on a downward trend as the latest Covid spike and subsequent lockdowns combined with a milder weather outlook have impacted the energy demand outlook on the near curve, while buying activity has continue to tail off and LNG sendout from the USA continues a strong recovery.
- The weather has also been a little warmer than normal, and rainfall so far has been less than seen through October, which has also helped lower demand on the prompt.
- Prices further out saw something of a recovery in recent trading on news of a vaccine showing promise, which lead to a rebound in oil prices as well as other markets as hopes of a swift recovery in 2021 were raised – but gas prices have receded a little since, with caution still seemingly prominent.