Energy Markets Surge Amid Escalating Strait of Hormuz Disruption

Market Update:

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• There is no clear indication as to why the prices are lower, given the ongoing stalemate around Middle East ceasefire talks, the Straits of Hormuz remain closed and there are lower Norwegian gas imports!
• Oil prices have fallen to around $94.6/bbl, which has been attributed to expectations that peace talks between the U.S. and Iran will take place this week, although neither side seem to be confirming this.
• President Trump said on Monday he believed a nuclear deal the U.S. is currently negotiating with Iran will be better than a 2015 international agreement to curb Tehran's nuclear program.
• With a two-week ceasefire set to expire in the coming days, prospects for a second round of talks between the U.S. and Iran in Pakistan were not clear.

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NATURAL GAS:
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European gas markets are holding lower than the previous session, despite pricing higher through the morning, as uncertainty in the Middle East continues to drive commodity markets. The NBP front month contract is pricing at 99.80 p/th at time of writing, only 0.25 p/th lower than Monday’s close. The equivalent TTF contract is pricing at 39.65 €/MWh, down 0.20 €/MWh on the previous session.

Uncertainty around talks continues to drive volatility in the market after the weekend’s closure of the Strait of Hormuz. The US Vice President is travelling to Pakistan where talks could take place either today or tomorrow, with Iran reluctant to publicly commit to talks but with other reports suggesting they will send a delegation. The current ceasefire agreement is expected to expire on Wednesday.

The UK system is balanced at open with total demand at 150mcm, 47mcm below seasonal normal. Norwegian supplies are tighter today with a 93mcm outage at Troll, which is expected to last 1 day. Weather forecasts have shifted slightly milder overnight with the weekend now expected to be 2 degrees above seasonal normal for the UK.

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ELECTRICITY:
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European power markets have opened in line with the previous session. The UK Baseload front month contract is pricing at 85.50 £/MWh at time of writing, up 0.50 £/MWh day on day. The equivalent German Baseload contract is pricing at 75.80 €/MWh, down 0.55 €/MWh.

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Weak wind generation is offsetting any peace talk optimism in the UK power market with wind speeds now declining to 4 or 5 m/s below seasonal normal at its worst on Saturday. Forecasts are then expected to remain below seasonal normal for the remainder of the 2 week forecast, with gas for power demand seeing an increase as a result. In contrast, UK solar generation is set to see a significant increase after today, with solar levels expected to be well above seasonal normal until early next week.

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Brent oil is trading in a 3.00 $/bbl range this week as the market awaits clarity around the peace talks in Pakistan and any possible outcome. Following the sharp spike as a result of the Hormuz closure at the weekend, prices have been holding between 93.00 and 96.00 $/bbl since, with prices around the 95.00 $/bbl level at open today.  

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Latest Price:
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Latest Gas & Power Annual Chart:
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