October is not starting very well
While September ended with the biggest decline in the US equity market since March, October starts with a sharp fall in Asia, particularly in Japan, despite…
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European gas prices increased again strongly yesterday, taking support from the fact that during daily auctions Gazprom has not booked any transportation capacity at the Mallnow entry point for today, which opens the prospect of a drop in Russian flows (which averaged 288 mm cm/day yesterday, compared to 287 mm cm/day on Wednesday). The additional rise in Asia JKM prices (+8.01%, to €99.626/MWh, on the spot; +3.76%, to €91.616/MWh, for the November 2021 contract) and in parity prices with coal for power generation (the rise in coal prices offset the drop in EUA prices) did not help calm the upward pressure. Note that Norwegian flows were slightly up yesterday, to 340 mm cm/day on average, compared to 337 mm cm/day on Wednesday.
At the close, NBP ICE November 2021 prices increased by 24.680 p/th day-on-day (+10.90%), to 251.180 p/th. TTF ICE November 2021 prices were up by €10.56 (+12.10%) at the close, to €97.774/MWh. On the far curve, TTF Cal 2022 prices were up by €5.22 (+9.99%), closing at €57.489/MWh, significantly widening the spread against the coal parity price (€40.856/MWh, +2.75%).
As expected, flows at Mallnow are nominated down this morning. Therefore, fundamentals remain bullish and justify an additional price rise (TTF ICE November 2021 prices reached €100.00/MWh this morning). But, it is good to remember that fundamentals do not directly give the price. Fundamentals push market (physical and financial) participants to act and it is their buy/sell actions that determine the price. Without these buy/sell actions, there is no price impact, whatever the fundamentals. Will financial participants continue to buy at such high levels? Technical analysis shows that the expected return of a buy strategy is now very low, if not negative (the rise of the 5-day average above the 5-day High is the ultimate indicator of an overbought market). Will physical participants continue to buy? Yes if they still have volumes to hedge for November 2021 for example. It is obviously difficult to estimate these volumes. One of the indicators on which we can rely on is the open interest. After a strong increase, it is now slowing down. A sign of exhaustion of physical (buying) interests?