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Our market view - week 37

Released - Last updated


Gas prices jumped last week on supply concerns - despite weak supply/demand fundamentals.


Gas prices jumped last week in concern over tight supply. The market is coming out of the lowest point of the year for seasonal gas demand. Norwegian production is scheduled to have its highest period for maintenance this week. The Kollsnes gas processing plant maintenance from Sept. 10-22 will reduce Norwegian gas flows by 145 mcm/d. Ongoing work at the St. Fergus import terminal is impacting UK import capacity by an expected 19 mcm/d until Sept. 30, and the Shell Bacton terminal by 21 mcm/d this week. Relatively low LNG send-out from the South Hook terminal contributes to supply concerns.

Gas prices will remain supported by maintenance work this week, adding to the already tight NBP supply picture.

The amount of risk heading into winter is growing, pushing prices higher despite weak underlying supply/demand fundamentals. The risk is coming from higher demand assuming normal weather, higher reliance on renewables in baseload power generation, the potential for LNG supplies to be pulled to Asia, and low French gas storage levels and nuclear power output. Last year, Russia could not deliver gas during the cold snap due to high domestic demand. The risk is lower this year but still lingers.

Oil prices rose on expectations for the US Federal Reserve to launch further stimulus measures, while weak Chinese industrial output data limited the gain. Chinese factories ran at their slowest rate for over 3 years in August.
Political risk in the Middle East is still the main price driver. The IAEA board will meet today to discuss the Iranian nuclear progress. There has been intense lobbying by the US and Germany to prevent an Israeli attack on Iran.
The potential release of the strategic petroleum reserves by the US, to control high gasoline prices and prevent high crude prices from undermining sanctions on Iran, is still an issue. A concern is that the release may have little effect on global oil prices, partly driven by tighter supplies of refined fuel such as gasoline. Rising gasoline prices are a growing headache for President Obama ahead of the November election. After a number of closures, US refining capacity has dropped to the lowest since 2005, while gasoline and distillate inventories are relatively low.