European energy markets fell sharply on Wednesday as reports of a draft US-Iran agreement, reinforced by a Democratic victory in the US midterm elections, stripped a substantial geopolitical premium out of gas and oil. Power prices followed but with more resistance, held up by weak wind, poor nuclear availability and colder weather building into next week.
Natural Gas
Gas retreated because the market stopped pricing a closed Strait of Hormuz, not because anything physical improved. A draft memorandum of understanding reportedly approved by Washington was presented to Tehran this week, and Iran is said to have exempted vessels from India, China, Iraq and Qatar from transit restrictions, pulling European prices back from the four-year highs reached earlier in the week. NBP day-ahead settled at 212.00 p/therm on Wednesday, down 12.00 p/therm, with front-month Dec-26 at 218.40 p/therm and Q1-27 at 213.51 p/therm, both down between 3 and 4 per cent on the day and around 13 per cent on the week. TTF front-month settled at 88.08 €/MWh. The fundamentals remain unhelpful: EU storage is around 74 per cent full and has been net withdrawing since late October, European LNG imports are running some 7 per cent below October, and unplanned Norwegian outages at Visund, Oseberg and Åsgard left 52.9 mcm/day of capacity unavailable on Wednesday, though that clears to 19.8 mcm/day by tomorrow. UK supply held up, with UKCS production at 105.30 mcm/day, Langeled steady at 74.00 mcm/day and LNG sendout expected at 55 mcm/day today, but gas-for-power demand is up 13 mcm/day and set to rise further as wind drops away into the weekend. Further out, Summer 27 at 154.33 p/therm trades above Winter 27 at 148.41 p/therm, an unusual inversion suggesting the market expects the squeeze to persist through the injection season.
Electricity
UK power eased only slightly, because the generation stack is tightening even as the commodity complex falls. Day-ahead baseload settled at 203.57 £/MWh, down just 1.43 £/MWh, while day-ahead peak rose to 217.47 £/MWh. Wind fell from 32.5 per cent of the mix to 28.5 per cent and gas-fired generation rose from 34.3 per cent to 39.7 per cent, with CCGT setting the marginal price through most of the day against demand of around 38.4 GW. Nuclear availability is a persistent drag: Heysham 2 Reactor 8 is fully offline until late November, Heysham 2 Reactor 7 and Heysham 1 Reactor 2 are running derated, Heysham 1 Reactor 1 began a planned outage on Monday and Torness 2 comes off at the end of the month. Interconnectors offered little help, with GB net exporting and continental spot baseload clearing above 255 €/MWh in Germany, the Netherlands and France, where nuclear output fell 9 per cent in October on strikes and low river levels. Intraday volatility was pronounced, with Wednesday’s system price ranging from 151.10 £/MWh late in the evening to 290.00 £/MWh in mid-afternoon. Along the curve, Dec-26 baseload settled at 175.82 £/MWh and Cal-27 at 134.16 £/MWh, down 3.30 per cent, with clean spark spreads for a benchmark CCGT now sitting close to break-even once UK allowance costs are included.
Other Commodities
Oil led the sell-off, with Brent M+1 down 8.67 per cent to 94.62 $/bbl and WTI down 8.29 per cent to 88.12 $/bbl, taking weekly losses to 18 per cent and 14 per cent respectively, a measure of how much Hormuz closure risk had been priced into the front of the curve rather than any change in physical balances. The floor remains firm after Iran’s Revolutionary Guard said four tankers were destroyed by mines near the strait this week. Coal API2 ARA Cal-27 eased 1.87 per cent to 134.00 $/tonne. Carbon moved the other way, with EUA Dec-26 up 0.26 per cent to 90.16 €/tonne and UK ETS Dec-26 flat at 67.17 £/tonne, equivalent to 80.48 €/tonne, leaving UK allowances at a discount of roughly 9.70 €/tonne to the EU market and keeping the question of linkage live for UK industrial hedgers. In global LNG, JKM fell 5.03 per cent to 29.55 $/MMBtu as Asian demand softened while Henry Hub Dec-26 firmed 2.21 per cent to 2.96 $/MMBtu, modestly improving the pull of Atlantic cargoes towards Europe. Sterling rose 0.45 per cent against the dollar to 1.3471 and slipped to 1.1982 against the euro.