Last week saw gas and power prices test January highs…

Mostly off the back of increased concerns over Russia/Ukraine but also helped by some unplanned outages affecting North Sea output corresponding with cooler temperatures and increased gas heating demand.

Yesterday prices retreated from these recent highs and this morning that trend has continued with March 22, Summer 22 and Winter 22 gas contracts all dropping 10% from yesterday’s close. Power has been noticeably illiquid recently, but close prices are down from last week’s highs.

While the west talks up the risk of war, Russia is continuing to maintain it has no intentions to invade Ukraine, the West continues to shore up support for sanctions and retaliatory measures in the event of an invasion which are arguably helping to reduce the likelihood of that happening. There are also suggestions that Putin may also be putting off any invasion until after the Winter Olympics to avoid upsetting the Chinese, either way, the market has reacted with lower prices for now.

Fundamentally the situation continues to look better, we’re getting closer to the end of Winter without a prolonged deep cold spell, easing pressure on storage, while milder temperatures are forecast for early February and the UK and Europe continue to enjoy a plentiful schedule of LNG arrivals. The UK alone has 15 booked for the first 2 weeks of February.

In the absence of invasion, the improving fundamentals are allowing prices to fall back, though the levels remain well above the range they were in pre-December. With Putin unlikely to want to upset the Chinese with actions that would steal the world’s attention from the Winter Olympics the threat of war may have receded at least temporarily. If forecasts continue to improve and there is no late Winter cold snap, there is every potential for prices to continue to ease back towards the levels we last saw in October/November.