Despite the Middle East conflict: Why the gas markets have calmed down somewhat

Geopolitical risks continue to provide support on gas markets this week. However, the current trading week has so far been less volatile than the last two weeks.

Market remains tense but less nervous than in previous week

The nervousness and the associated risk premiums on the markets have eased a little since indications have increased that the damage to the Balticconnector pipeline may probably not have been caused by an attack, but by a ship anchor.

To that end, Israel’s anticipated ground offensive in Gaza has not yet begun. Diplomatic efforts are in full swing to prevent a conflagration in the region.

Weather developments crucial

As always at this point in the year, the weather is crucial for further developments on the markets. Temperatures in Germany have averaged 13.6° C so far in October, just under 3 degrees above the seasonal norm.

The warm trend is also expected to continue until the end of next week, with daily averages of up to 13° C, around 5 degrees above the seasonally normal daytime values.

Full gas storage facilities, mild October

Gas storage facilities in the EU are just under 99 percent full, almost 9 percentage points above the five-year average. A total of 1123 TWh of natural gas is stored, only 15 TWh below the nominal maximum filling capacity.

With reference to the current temperature forecasts and the recent high wind power forecasts for the next 10 days, we do not expect a significant increase in withdrawals until after this period.

As a result of the mild October so far, the recently started winter season saw a total of 34.4 TWh of net gas storage in the EU, around 18 percent more than the five-year average.

Gas market largely balanced

Total gas supply in the EU this week is around 11 TWh, about 1 TWh above last year’s low. Nevertheless, total gas supply for the current month is 265 TWh, about 30 percent below the annual average.

Retail gas demand (excluding storage demand) totals 210 TWh this month, about 23 percent below the five-year average.

Forward contracts narrowing

Forward curve spreads have tightened a bit over the past four weeks. Front month Nov-23 has increased in price by almost 10 EUR/MWh in this period. Q1-24, on the other hand, by only 7 EUR/MWh and Cal-24 by only 6 EUR/MWh.

Thus, the front month Nov-23 was last quoted at just under 51 EUR/MWh, around 5 EUR/MWh cheaper than the front quarter Q1-24 and 4 EUR/MWh cheaper than Cal-24. It is also noteworthy that Summer-23 was last quoted at just under 54 EUR/MWh, around 3 EUR/MWh more expensive than Nov-24.