British consumer confidence has surged to its highest level in nearly three years as of August, driven by growing optimism around personal finances and the ability to make significant purchases. Meanwhile, the German economy has experienced a slight contraction of 0.1% in the second quarter of 2024, largely due to sluggish private consumption and a downturn in the construction sector. In China, industrial production saw its slowest growth in four months this past July, exacerbating concerns about the robustness of the country's recent economic recovery.
The oil markets have been highly volatile in recent weeks, with Brent crude prices fluctuating between $75.00 and $82.40 per barrel. Early August saw a sharp decline in prices, spurred by unexpected macroeconomic data that raised questions about the global and US economies' health. However, this downward trend has been checked by ongoing geopolitical tensions in the Middle East, disruptions in Libyan oil output, and more positive economic data from the US. Currently, Brent crude is trading at $76.00 per barrel. Analysts warn that the disruption in Libya could lead to a reduction of up to 1 million barrels per day—about 1% of the global oil supply—if no international intervention occurs, potentially prompting OPEC+ to consider increasing production in October.
European LNG imports are on track to reach near three-year lows this month, thanks to comfortable stock levels and heightened cooling demand in Asia. However, these intense heatwaves in East Asia are expected to decrease in frequency as autumn approaches. Globally, LNG supply remains robust, with the exception of Train 2 at Ichthys LNG in Australia, which has been temporarily shut down for inspection and repairs. This outage, expected to last until the end of September, is projected to result in the loss of approximately five cargoes, intensifying competition for spot cargoes among Asian buyers.
A significant maintenance period is imminent for gas facilities on the Norwegian and UK Continental Shelves. The Kårstø processing plant and its supply fields will undergo a nearly three-week shutdown, coinciding with the closures of the Dornum and Nybro terminals. Additionally, the Langeled pipeline is scheduled for a shutdown in early September. Meanwhile, Naftogaz’s underground gas storage infrastructure sustained damage during Russia's latest missile and drone attack on August 26th. Despite this, the company has continued to meet customer nominations, though the incident has reignited fears that Russian gas exports to Europe could be disrupted at any moment.
Despite a stronger-than-expected demand due to ongoing warm and calm weather conditions, European gas storage levels are currently at 92.4% capacity, with German storage at 95%. This achievement is more than two months ahead of the EU’s November target of reaching 90% full storage.
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Windy and sunny conditions across North-West Europe in the first three weeks of August significantly decreased the need for gas in power generation. This led to an accelerated pace of gas injection into storage and resulted in notably low day-ahead power prices in the UK on several occasions. Since then, high temperature anomalies, coupled with reduced renewable energy production, have increased cooling demand, pushing spot prices to a seven-month high in the UK (£90.11/MWh on N2EX for delivery on Friday, August 30th) and close to a year-to-date record across the Continent. However, temperatures in Northwest Europe are expected to moderate, and wind output is forecasted to remain below seasonal norms.
In a significant development, the British energy regulator Ofgem has approved a £3.4 billion funding package for the construction of the Eastern Green Link 4, a 500km subsea and underground power cable (2GW) between Scotland and England, which is set to be completed by 2029. Despite increased volatility in gas and carbon markets, prices for Winter 24 have ended the month largely unchanged, having traded within a 7-pound range.
Recent gas field maintenance in the North Sea, ongoing heatwaves in North-East Asia and Europe, and concerns over deliveries from Qatar and Russia have recently supported energy prices. However, underlying fundamentals remain bearish. Unless there is a significant disruption in Russian or Middle Eastern exports, prices are expected to decrease in the coming weeks. This outlook is supported by near-record European gas storage levels, the anticipated return of French power supply to above seasonal norms, and stable demand forecasts for the European economy.
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