October and November are sometimes probably the most risky months for pure fuel costs.
That’s what Hani Abuagla, a Senior Market Analyst at XTB MENA, stated in a market remark despatched to Rigzone late Tuesday, including that “2024 is not any completely different”.
“It’s when buyers shift their focus from the summer season season to the heating season, for which the whole market has been getting ready for virtually the whole 12 months,” Abuagla acknowledged within the remark.
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“Though the demand for electrical energy generated from fuel has been rising considerably lately, it’s in winter that pure fuel consumption considerably exceeds manufacturing capability,” he added.
“That’s the reason the extent of shares simply earlier than the beginning of the heating season exhibits us whether or not we will really feel protected or if a scenario just like 2021 and 2022 could happen when the fuel market skilled monumental volatility because of Russia’s actions within the type of proscribing provides to Europe, after which beginning the struggle in Ukraine,” he continued.
Begin of Heating Season
Within the remark, Abuagla famous that the beginning of the heating season in Europe and the U.S. often takes place originally of October.
“It’s then that the quantity of fuel injections to storage amenities begins to be lower than the quantity of fuel withdrawn from storage,” he highlighted within the remark.
“The extent of storage earlier than the beginning of the heating season and the speed of withdrawal of fuel from storage have a big impact on value actions,” he added.
“Europe’s storage amenities are at present crammed to virtually 94 p.c. That is barely beneath the degrees of 2019, 2020, and 2023, however that is additionally because of lack of strain to replenish inventories as demand is considerably decrease than earlier than,” he continued, noting that “the storage degree is above the five-year common, which is at present 89 p.c”.
The storage scenario in the USA is barely completely different, Abuagla stated within the remark.
“A really heat autumn and winter of 2023-2024 led to storage amenities being crammed 39 p.c greater than the five-year common on the finish of the heating season this spring,” he added.
“U.S. fuel value was scraping the underside for a lot of the 12 months, and a few anticipated that the extent of $1.5 per million British thermal models (MMBtu), which happens extraordinarily not often available on the market, wouldn’t be the bottom degree this season,” he continued.
“Nevertheless, it’s price remembering that at such a value, a smaller and smaller a part of the manufacturing was worthwhile, which met with communication of capital expenditure restrictions from upstream corporations in the USA,” Abuagla stated.
“Then the summer season interval got here, wherein fuel consumption because of warmth was exceptionally excessive. It must be emphasised that over 40 p.c of electrical energy within the U.S. comes from gas-fired energy vegetation, so elevated air conditioner utilization additionally generated important fuel consumption,” he went on to state.
Abuagle famous within the remark that the present degree of shares stays about 5 p.c above final 12 months and about eight p.c above the five-year common however added that “the tempo of rebuilding shares is the slowest in years”.
“It can’t be dominated out that the heating season will start with a inventory degree across the five-year common, which might justify greater value ranges than now,” he stated.
“Nevertheless, the important thing situation for additional value actions can be how a lot fuel can be consumed later within the heating season,” Abuagla warned.
Futures Contracts
The senior market analyst stated within the remark that the volatility of the October and November futures contracts within the U.S. is often considerably elevated.
“The value of the October contract elevated by 10 p.c in August,” he highlighted.
“The same scenario happens within the quotations of the November futures contract, which since rolling over from the October contract has already gained over 10 p.c and the worth is approaching the extent of $3 per MMBtu,” he added.
“The seasonality of the fuel market causes giant variations between particular person futures contracts. At present, the November contract is traded at $2.8 per MMBtu, whereas the January one (which is often the best within the futures curve) is already traded at $3.6 per MMBtu,” he continued.
“The value for January 2025 already displays the possible decrease out there provide within the U.S., because the contract is traded at $4.2 per MMBtu,” he went on to state.
The scenario is totally reverse with European fuel, Abuagla stated.
“The doable better out there provide sooner or later implies that the costs of futures contracts from 2027 onwards point out costs beneath 30 EUR/MWh, though the following 12 months must be fairly secure between EUR 36-38/MWh,” he added.
Out there remark, Abuagla famous that, with the following contract rollover within the second half of October, U.S. natgas costs may face downward strain.
“Whereas seasonal tendencies sometimes see costs peaking in November, the underlying fundamentals counsel a possible for considerably greater costs within the medium to long run,” he stated.
“Nevertheless, if natgas consumption in the course of the early heating season stays low, even on the comparatively low value vary of round $3-3.5 per MMBtu, a considerable two-digit value correction could also be anticipated,” he warned.
Rystad Replace
A fuel and LNG market replace from Rystad Power Senior Analyst Lu Ming Pang, which was despatched to Rigzone by the Rystad staff on Monday, acknowledged that concern of provide disruptions despatched month-to-month futures on the Title Switch Facility (TTF) to their highest degree since December 2023 on August 12, “as satellite tv for pc photographs revealed bodily injury to certainly one of 4 compressor models on the Sudzha fuel metering station”.
“Whereas Russian territorial positive aspects have up to now been described as ‘tactical’, a full-scale counterattack bears the potential for nervous value reactions in Europe,” the market replace stated.
That replace highlighted that U.S. Henry Hub fuel costs “rose to $2.29 per MMBtu on the time of writing on September 19 from $2.17 per MMBtu reported in our September 9 replace”.
“Hurricane Francine barreled throughout the U.S. Gulf of Mexico, affecting offshore manufacturing. Most liquefaction amenities have been left largely unscathed, with solely Cameron LNG having to curtail manufacturing, as evidenced by the discount in feedgas from a typical two billion cubic ft per day (Bcfpd) to about 0.8 Bcfpd on 12 September,” it added.
“The ability has since returned to regular feedgas charges. Plaquemines LNG, which is at present present process commissioning works, might also have skilled a delay as a result of hurricane, because the LNG vessel Qogir, which is carrying a cool-down cargo, remains to be on-site after arriving on 23 August,” the replace went on to state.
To contact the creator, e-mail andreas.exarheas@rigzone.com
