Prices correct lower despite heightened Middle East tensions

Gas prices saw a swift reversal on Friday, correcting lower despite heightened Middle East tensions.

A brief pause in US/Iran strikes before the weekend may have been enough to weaken bullish sentiment, and this was likely helped by forecasts of seasonal demand and robust offshore production which guided the curve lower as well.

According to the latest run of our 14-day model, demand is expected to output very much in line with seasonal norms.

This is likely lending some confidence to market sentiment as we pass through yet another heatwave that is straining regional supply due to more significant cooling demand in the European mainland.

At the same time, stable Norwegian and UK output and minimal planned maintenance is helping to reinforce regional resilience against the heatwave, and in turn, lending much needed to support to storage injection efforts.

The baseload power curve saw only minimal downside, with muted wind generation leaving the system reliant on pricier gas-fired generation and system operator interventions.

CCGT continued to serve as the single largest source of generation on Friday, comprising 38.7% of the generation mix, versus wind at just 8.2%.

NESO once again notified participants of potential SO-SO (System Operator) trades with France’s RTE in case of a shortfall, elevating intra-day balancing costs.

When the grid is unable to balance itself with domestic resources, the grid operator must step in and request urgent imports via interconnectors with neighbouring countries.

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Price commentary courtesy of Crown Gas and Power