In July, China's factory activity decreased for the first time in nine months, and Eurozone activity also contracted due to weak demand. In contrast, the UK's manufacturing PMI rose to its highest level since July 2022, fueled by optimism following Labour's electoral victory. The Bank of England cut interest rates for the first time in over four years, reducing the key rate to 5%, while the US Federal Reserve maintained its rates, signaling a potential decrease in September.
Despite ongoing geopolitical tensions and supply risks from Canadian wildfires, oil prices have been under pressure in July. Brent crude is trading at $80.50 per barrel, near its lowest level in two months. Concerns about the economic slowdown in China, the world's largest crude importer, have weighed on markets, diminishing hopes for a strong rebound in demand this summer. However, analysts suggest prices may rise in the third quarter due to relatively tight fundamentals.
LNG deliveries to European terminals remain below 2022 and 2023 levels due to strong heatwave-related demand from Egypt, India, and North-East Asia. Freeport LNG resumed liquefaction operations in Texas after hurricane Beryl caused a temporary halt. A bankruptcy court approved a settlement allowing Exxon Mobil and Qatar Energy to hire Chiyoda International as the new lead contractor for the Golden Pass LNG plant, which was $2.4 billion over budget. Despite lower LNG deliveries, European gas storage facilities are 84.7% full, nearly a record high for this time of year.
Temperatures in South-Eastern Europe have been well above seasonal levels, with the heatwave expected to continue into August. Conversely, the UK and North-Western Europe are experiencing cooler temperatures and rising wind generation, providing short-term market relief. The UK government announced the launch of Great British Energy to attract investments in renewable energy and achieve energy independence. A Planning and Infrastructure Bill aims to expedite the deployment of essential infrastructure. RTE, France's power grid operator, warned of export capacity constraints from next week until mid-October, causing a significant price spread between French and German power contracts. EDF expanded its list of reactors at risk of maintenance delays due to stress corrosion issues, now affecting 23 units.
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The latest increase in tensions in the Middle-East and the associated risk of a disruption in LNG exports from Qatar, ongoing heatwaves in Asia and Europe, very low wind generation levels, and gas field maintenance in the North Sea have supported gas prices this week. September 24 is up by more than 10% (currently at 89.00 ppt), and Winter 24 back above the 100 ppt level. Further gains can’t be ruled out, however, barring any major supply issue from Qatar or Russia, prices should come back down in the coming weeks, thanks to near-record European storage levels, strong hydro and nuclear generation in France, and a weak economic outlook.
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