Energy Markets Fall as Hopes Grow for US-Iran Peace Deal

Market Update:

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• Hopes grew on Friday for peace between Iran and the United States after President Donald Trump said a deal could be signed as soon as this weekend, even as Tehran said it had not made a final decision on a pact.
• Prior to this, President Trump had stated that the U.S. will “hit Iran hard” whilst also stating that he wants to take Kharg Island, Iran’s oil hub.
• If and when the peace deal is signed, the Straits will officially open!
• Oil prices have dropped and now sit at $88.3/bbl.
• Front month gas prices are down c.6% in early trading.

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NATURAL GAS:
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In the UK, this morning the NBP front-month contract is trading at 111.68p/th  at time of writing, a sharp decrease of 8.11p/th when compared to yesterday’s closing NBP front-month price of 119.79p/th. This is largely the result of a combination of the deescalation of tensions in the Middle East along with the outlook of stronger wind generation.
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A constant supporter of gas prices has been the ongoing tensions in the Middle East. This support has been reduced overnight as the US signalled it would not pursue further escalation in the region. This has eased concerns and prompted traders to unwind part of the geopolitical risk premium helping to soften prices.
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Another key bearish driver has been the outlook for stronger wind generation across the UK. Forecasts indicate renewable output will increase significantly from Friday onwards, reducing the need for gas-fired power generation and pushing gas further out of the generation stack. As a result, demand expectations from the power sector have weakened, placing downward pressure on prompt gas contracts and contributing to losses across the front end of the curve.
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While front of curve has seen major softening in prices, further out on the curve, contracts remained comparatively resilient. While the immediate geopolitical outlook appears less supportive, ongoing uncertainty surrounding Middle East energy infrastructure and LNG supply routes continues to provide some support to longer-dated contracts.
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Overall, today's bearish movement in the market has been driven primarily by weaker demand expectations linked to stronger wind generation and a reduction in geopolitical risk premiums. These factors resulted in significant bearish movement across the front end of the UK gas curve.
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ELECTRICITY:
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In the UK and across Europe, power prices moved lower today as easing geopolitical concerns and stronger renewable generation forecasts helped soften prices.
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One of the significant bearish drivers has been the de-escalation of tensions in the Middle East. Following indications that the US would not pursue further military escalation in the region, the geopolitical risk premium that had supported prices earlier in the week has been softened. As gas markets weakened in response, power contracts followed suit, with lower fuel costs feeding through into wholesale electricity prices across Europe.
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Weather forecasts have provided additional downward pressure. Expectations for stronger wind generation across the UK and Northwest Europe are set to reduce reliance on thermal generation over the coming days. Increased renewable output is expected to displace gas-fired generation within the power stack, weakening demand for conventional generation and weighing on prompt and near-curve power contracts.
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Overall, stronger wind forecasts and the easing of geopolitical tensions have been the key drivers behind today's decline in European power prices.

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Latest Price:
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Latest Gas & Power Annual Chart:
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