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Global tensions, underscored by the conflict in the Middle East and political events in France and across the Continent, have dominated global equity markets in June. These events, coupled with a fragile economic recovery and uncertainty about the timing and extent of interest rate cuts, have contributed to market volatility.
In the UK, inflation has returned to its 2% target for the first time in three years. However, the persistent strength of services inflation, coupled with strong wage growth, has prevented the Bank of England from reducing interest rates.
Investor confidence in Germany’s economy improved less than anticipated in June, adding to the uncertainty over the country’s economic outlook.
Brent crude oil prices fell sharply at the start of the month following OPEC+’s announcement of a possible increase in oil supply from October. However, prices have since risen by around $10, currently standing at $87.00 per barrel. Lingering geopolitical tensions in the Middle East and Russia, the prospect of easing interest rates, and hopes for improved demand this summer have underpinned prices.
The outlook for the third quarter remains supportive. Standard Chartered expects Brent to reach $90.00 per barrel, and according to ING, global oil markets will face a supply deficit of 1.5 million barrels per day.
In Australia, Chevron’s Wheatstone LNG exporting terminal has resumed operations, while in the US, Cheniere’s Sabine Pass facility is undergoing partial maintenance. In Europe, Equinor's Hammerfest plant in Arctic Norway suffered an unexpected outage last week, but production has now restarted.
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Global LNG demand remains strong amid ongoing heatwaves in Egypt, India, and across North-East Asia, reducing cargo availability for European markets. Deliveries to Europe are now well below 2022 and 2023 levels.
EU countries have approved a 14th package of sanctions against Russia, including a ban on re-exports of Russian LNG in EU waters. This ban on “trans-shipments” is the first restriction applied to LNG, although the measure is likely to have little impact as trans-shipments via EU ports only represent around 10% of Russian LNG exports.
Temperatures have been well above seasonal levels lately, especially in Eastern Europe where the heatwave is expected to continue into July. In the UK and North-Western Europe, however, normal temperatures are expected for this week, reducing power demand for air conditioning.
Prices for Winter 24 have slowly come down in June, ending the month 5% lower due to weaker French power prices, healthy gas storage levels, and lower carbon prices. The likely change of government in the UK is expected to generate significant volatility over the coming months, especially in the carbon market. Prices for the December contract rose from £38.00/tonne in early May to £50.00/tonne in mid-June, currently standing at £46.00/tonne.
The gas and power markets have been relatively quiet lately, with little change in fundamentals. Market participants seem to be in a “wait-and-see” mindset ahead of the second round of parliamentary elections in France and the general election in the UK. Concerns about lower Russian exports to Europe remain, while the tightness observed in the LNG market is decreasing the pace of injections into European gas storage facilities. Both factors are likely to continue supporting prices in the coming weeks.
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