Contraction of industrial activity in China but rebound in services
The August PMIs confirmed the negative impact of the power cuts on China’s industrial activity in September, with the manufacturing PMI falling below 50 for the…
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European gas prices dropped significantly on Friday as concerns on a potential drop in Russian flows faded. Indeed, Russian supply increased again on Friday (to 248 mm cm/day, compared to 226 mm cm/day on Thursday) thanks to the rise in flows through Ukraine and the resumption of flows through Poland.
At the close, NBP ICE March 2022 prices dropped by 96.420 p/th day-on-day (-29.95%), to 225.550 p/th. TTF ICE March 2022 prices were down by €39.89 (-29.70%), closing at €94.442/MWh. On the far curve, TTF ICE Cal 2023 prices were down by €16.10 (-20.70%), closing at €61.690/MWh.
In Asia, JKM spot prices dropped by 10.90%, to €100.566/MWh; April 2022 prices dropped by 26.17%, to €83.313/MWh.
But the sentiment seems to have changed over the week-end. Yes, Russian flows have continued to increase (to 254 mm cm/day yesterday). But the market is now wondering if this will last. Indeed, on Saturday, the United States and its European allies decided tougher measures against Russia, moving to block certain Russian banks’ access to the SWIFT international payment system. While some Russian banks – including Gazprombank, which services large oil and gas payments – have escaped full blocking sanctions, the time it takes to switch to new systems would still mean major disruptions to flows. The fact that Germany has signaled a U-turn in key energy policies on Sunday, floating the possibility of extending the life-spans of coal and even nuclear plants to cut dependency on Russian gas, suggests that at some point a decision to halt Russian gas imports can no longer be ruled out.
On Friday, TTF ICE March 2022 prices were back to more “normal” trading levels: below the 1-Year High target, and most important inside the 5-day High and 20-day High range. But this morning, prices for April 2022 (the new 1st nearby contract) are sharply up, inflated by the risk premium on a possible drop in Russian flows. The 1-Year High target is opposing a resistance. Today, prices could remain in the zone between the 5-day high target and the 1-Year High target, inside which is the price of the most expensive gasoil switching possibilities: estimated at €110.37/MWh). But any drop in Russian supply would trigger a price rally, at least temporarily.