Warm Weather Cools Gas Prices

Warm Weather Cools Gas Prices

Given the unseasonably warm weather across much of the continent, TTF gas futures have continued to see a steep decline over the course of 2023. Indeed, yesterday’s session saw prices slide over 6% to trade at €72 MWh, while prices have fallen a gargantuan 46.66% over the course of the last month. This puts TTF gas futures at their lowest level since February of 2022, when the Russian invasion of Ukraine and subsequent supply-side shortages exacerbated an already fragile European energy market. Here, the fall in the price of gas prices, has helped alleviate inflationary concerns given that most of the inflationary pressure is driven by energy across the eurozone.

Regarding natural gas storage, Europe’s current level stands at 83.5% full – well clear of the average of 70% for this time of the year, also helping to drive down prices as investors ease on their concerns of supply-shortages. ?

Wind power generation has also helped alleviate some of the supply side pressures, while LNG imports from countries such as Qatar and the US, to EU member states remain strong, given the recent signing of major deals.

Similarly, to Europe, the UK’s gas benchmark slumped over 7.5% yesterday to trade at 14.26 GBp/Thm.

Briefing From Berlin

Yesterday saw markets react positively to the macro-economic picture in Germany as inflation came in softer-than-expected at 8.6% against expectations of 9%. This indicates a continued slowdown in the rate of inflation for Europe’s largest economy, dropping from last month’s print of 10% and October’s print of 10.4%. As such, on a monthly basis, consumer prices fell 0.8% in December, causing investors to rally on the increased prospect of the ECB conducting less aggressive rate hikes.

The drop in the rate of inflation over December came as the German state agreed for households and small businesses to pay a fixed price of 12 cents per kilowatt-hour (kWh) for 80% of last year’s gas usage. Meanwhile, other firms will pay seven cents per kilowatt hour for the first 70% of last year’s use. The scheme is estimated to cost around €200 billion and will help alleviate pressure on businesses and households – while also bringing down inflation. While Berlin helps to shield households and firms from the effects that the Putin’s aggression had on energy markets, Olaf Scholz has also only recently opened Germany's first floating LNG terminal in Wilhelmshaven.

German unemployment also met market expectations, coming in at 5.5% - indicating a drop from last month’s print of 5.6%.

2/3rds of Brits Support Second Brexit Referendum

A recent survey conducted by Savanta for The Independent now suggests that 2/3rds of the UK electorate would support having a second Brexit referendum – indicating a rise from previous polls.

This comes as the government looks set to miss one of their key Brexit targets. Four years ago, the Conservatives announced their “ambition is to cover 80% of total UK external trade with free trade agreements by 2022”. However, according to the FT, ?the “UK has so far only made deals covering just over 60 per cent of its global trade”. The article goes on to state that “Since it has left the EU, London has managed to roll over 71 deals that it had through its membership of the bloc”. Meanwhile Westminster has only signed a grand total of four new trade agreements, as concerns continue to mount vis-à-vis the northern-Irish border, worker shortages and Britain’s post-Brexit trading relationship with the single market and the US.

Oil Dips As Chinese Manufacturing Slows

WTI Crude Futures slipped below $80dpb yesterday, with the sell-off indicative of investors’ assessment of a decreased demand from China following a softer-than-expected PMI print. Indeed, yesterday’s data showed Chinese manufacturing PMI hit 49pts in December - its lowest print since September.

Investors are also weighing on the prospect of recessions throughout 2023 for a great number of economies around the world, leading to a slowdown in demand. Russia has also announced an oil embargo on any consumer which adopt the G7s’s price cap, hence increasing the prospect of supply side strains around the world. ??