“Economic” is obviously a relative term, also related to gasoline prices. Because on the one hand, we have market prices below the psychological barrier of 100 EUR per MWh – recently, TTF futures prices were at their current level in early summer. Monday closed at 96.5 EUR, down 15 percent. Today, Tuesday 25 October, this decline got worse – to EUR 93.5 per MWh at around 9:00 in the morning.
Gas prices in Europe are falling
The long trading journey of the last few months is clearly visible in the chart below. Suffice it to say that at the peak at the end of August, gas was quoted at over 340 euros per megawatt hour.
Gas prices, monthly contract, Dutch TTF market Source: investing.com
This market turn can obviously be happy, in the context of the ongoing high energy crisis inflation. However, it is worth realizing the aforementioned relativity by extending the graph to the front. On the threshold of summer 2021, before the energy crisis began to unfold (yes, it started then), the prices slightly exceeded the level of 20 EUR per MWh. At the time, we were still wondering if the Nord Stream 2 pipeline would be startedso we described the problems with its certification, and in the summer of last year, Gazprom started opening the tap of Europe and unscrewing the problems (a factor supporting the price increase, not to be forgotten, was also the popandemic economic rebound at a time).
Natural gas quotations in Europe, monthly contract. Source: investing.com
Gasoline prices in Europe they are still five times above the 10-year average, notes the Bloomberg reporter.
It is also worth mentioning that even the longest contracts for the winter – for December, January and February – are down, but remain at high levels, 130-140 euros.
An analyst from the Polish Institute of Economics points out that the downward movement is a large phenomenon in Europe. “Prices of gas at the Dutch hub TTF, the main benchmark for European gas contracts, fell almost six times in October from 160 (EUR / MWh) to 27 EUR / MWh. A similar, albeit not as dramatic, decline could be observed for Dutch futures prices (a drop from 170 to 98 EUR / MWh). The same processes take place in other European hubs (German THE, French PEG, Italian PSV and Spanish PVB). The Polish TGE also behaved in a similar way, closely related to these market areas, where October prices fell from 767 PLN / MWh to 172 PLN / MWh, which indicates a general European trend “- observes Kamil Lipiński in a comment sent to Next.gazeta.pl It’s not just about Europe, because gas prices in the US have fallen by more than 30% since August.
Negative gas prices? Why not. But why?
We describe monthly futures contracts here. But other contracts can also be concluded on the TTF market, both long and short term. Some are very, very short, just hours. And in such a market, the “next hour” market on Monday, prices were momentarily negative. This means that gas suppliers were willing to pay extra, provided someone took this raw material from them – the price was -15.78 (yes, less) euros per MWh.
“Such a large, more than three-fold difference between the cheap direct purchase and the relatively expensive futures contracts for the next month comes from the fact that warehouses are full at the start of the heating season – gas is now much less needed than in a month, and EU warehouses are nearly full (over 93% according to Gas Infrastructure Europe), so the buyer may have difficulty storing raw material purchased under spot contracts, writes PIE’s Kamil Lipiński.
What does it come from? And here we come (among other things) to the weather forecast.
Natural gas is a physical commodity, so when you trade it on markets, you trade it as a physical commodity. We now have a situation where a lot of this gas has been brought to Europe out of fear of winter and a complete disruption of supplies from Russia. So much so that there are no places where it can be stored (as mentioned by the analyst quoted above). There is a shortage of places, because the stocks are large. Two of them prevent the drainage of supplies stuff.
We are seeing a drop in demand for gas from various sectors in Europe, meaning there are no people willing to buy as large quantities of gas as previously assumed. This demand in the EU fell by 11%. in the first half of the year. “Businesses have begun to switch, where possible, to other energy sources and EU countries – to promote savings in public services and households. This process will intensify, companies do not believe in a quick end to the conflict and a return of low-cost gas, so they are investing in other sources and in energy efficiency ”- underlines the PIE analyst.
After all (and perhaps above all) autumn is so hot, and even the forecasts for winter do not assume exceptional frosts (eg. NOAA USA forecast assumes warmer than usual November and all winter for Europe). And weather forecasts (in addition to the topic of climate change) are one of the factors also monitored by financial and commodity markets, and by economists, and, at a lower level, probably by managers in various sectors. So far, this forecast favors the drop in gas prices. It is difficult to gauge time in distant terms, but the end of this month will be exceptionally hot, with positive temperature anomalies (i.e. an upward difference from the long-term average).
What awaits gas prices in the near future? And here the prediction does not materialize. “It is not excluded that prices will fluctuate further depending on the geopolitical situation, and the increase in demand linked to the heating season will bring prices in November and December closer to the levels set by current futures contracts”, sums up Kamil Lipiński.
