European gas prices rise on abnormal weather
Head of Commodity Strategy
European gas prices have continued the rally that kicked off after the coldest winter since 2012 helped deplete storage sites across the region. Since then, rising prices of coal and carbon allowances have supported a continued rally as it incentivises utilities to burn more natural gas, which requires half the allowances of coal.
In addition we have just witnessed an unusually hot summer which has led to coal power production being negatively impacted by low river levels across Europe. These developments have translated into bullish power prices.
Above-average temperatures into August have continued to support the price of natural gas. In the UK, the front season contract has reached the highest level seen since 2008 while Dutch gas, calendar 2019, trades around €22/MWh, an increase of more than 10% during the past two months alone.
After languishing between €4 and €8/ton from 2013 to 2017, European carbon allowances have witnessed a strong revival this year with the current price at €18/ton reflecting a year-to-date gain of 120%.
An important reason for this bull run is the Market Stability Reserve, a long-term solution which will address the current surplus of allowances and improve the system’s resilience to major shocks by adjusting the supply of allowances to be auctioned. The 900 million allowances that were back-loaded in 2014-2016 will be transferred to the reserve and then auctioned in 2019-2020.
Another key driver for European gas prices is the level of gas held in storage facilities around Europe. According to Gas Infrastructure Europe, storage levels have only just returned to their five-year average following a dramatic draw during the cold winter which this year extended well into March.
In summary the following are some of key drivers behind the price of European natural gas:
• The price developments in coal, carbon emissions, and crude oil
• Power generation from alternative sources such as wind and solar
• Seasonal temperatures above/below the seasonal norm
Saxo Bank offers access to the Dutch and German power market as well the TTF gas markets through CFDs. Monthly, quarterly, seasonal (TTF only), and annual contracts are available on the SaxoTraderGO platform.
More information: email@example.com
Latest Market Insights
Q4 Outlook 2022: Winter is coming
- Winter is coming to the financial markets as central banks are tightening their grip. How spring will look is still a question.
European energy crisis: it will get worse before it gets betterThe winter in Europe will be tough, but whether the result is political chaos or sustainable, innovative solutions is still undecided.
A difficult and volatile quarter awaitsAs the year draws to an end, commodities continue to be at centre stage of the world with growth pockets political uncertainty.
The bright side: crises drive innovationThe positive spin on crises is that they come with solutions. It is worrisome that deglobalisation may be a response to this crisis.
Green transformation in China: renewable energy and beyondGoing green, China needs to span numerous energy sources to ensure stability, as every source comes with a challenge.
Asia: Intermittent solutions, but a faster renewable adoption curveAsian energy supply is being squeezed. This and the adoption of renewables may change the investment sentiment in the region.
FX: A Fed thaw needed to deliver a sustained USD turn lowerThe US Dollar can keep momentum when the Federal Reserve continues to tighten, leaving the rest to play to their drum.
Autumn can become ugly for equities and bond holders. Comfort for Dollar longsTechnical analysis suggests that equities could face a tough Q4 as could fixed income. US Dollar positions could provide some upside.
The next stock market sector to watch, with stocks going nuclearAs the world scrambles to find affordable, sustainable energy, nuclear is getting attention from politicians and investors alike.
The crypto space is getting cold when the hype disappearsCryptocurrencies face a winter of their own as retail investors and governments are asking tough questions.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)