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Equity markets have experienced a decline from their all-time highs at the beginning of the month due to concerns about the potential long-term impact of sustained high-interest rates in the US on the global economy. Despite higher-than-expected inflation data from Germany and the Eurozone, the European Central Bank has initiated interest rate cuts. In the UK, consumer confidence has surged to its highest level in over two years in May, fuelled by decreasing inflation and the anticipation of potential interest rate cuts later this year.
Oil prices have declined throughout May, despite ongoing geopolitical tensions, with Brent crude trading between $80 and $86 per barrel. This decline is attributed to concerns over weak demand in major consuming countries, particularly in the US, as the Federal Reserve is expected to maintain high-interest rates. OPEC+ has extended its production cuts of 3.66 million barrels per day (bpd) until the end of 2025 and has agreed to start unwinding voluntary cuts of 2.2 million bpd starting in October.
Zachry Holdings, one of the contractors involved in constructing the Exxon Mobil/QatarEnergies' Golden Pass LNG export plant in Texas, filed for bankruptcy this month, citing challenges with the $10 billion project. The delay to the project's operations is uncertain, with exports initially expected to commence in the first half of 2025. Additionally, Australia's Beach Energy announced further delays to its Waitsia Stage 2 gas project in Western Australia, pushing the first production to early 2025 instead of mid-2024, heightening concerns about global LNG supply.
Austrian gas supplier OMV has indicated that a legal dispute with Russia's Gazprom might disrupt gas exports from Russia to Austria this summer, and it is increasingly likely that flows via Ukraine will cease by the end of the year. Meanwhile, Germany plans to abolish its gas storage tariff for foreign buyers next year. This levy, a remnant of the energy crisis, currently places a fee on gas taken from storage facilities to recoup funds spent on purchasing non-Russian gas at high prices.
Ukraine has imported record levels of electricity this month due to severe damage to its energy system from Russian missile attacks. Emergency supplies from Poland, Romania, and Slovakia have been provided at Ukraine's request, and restrictions have been imposed on industrial consumers. In France, the Paluel 3 nuclear reactor in Normandy went offline following a fire at the site's main transformer, and the Cattenom 3 reactor was also affected by a blaze in a non-nuclear part of the plant. Despite these outages, French nuclear generation remains above average, and with robust hydro and solar generation levels, French power prices are very low, with July currently trading at €45.00/MWh.
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Despite cooler and windier conditions than expected, last week’s short-term gas and power prices were supported by a significant drop in Norwegian supply following a shutdown of the offshore Sleipner platform, which halted operations at the Nyhamna processing plant due to a crack discovered in a two-inch pipeline. The issue has since been resolved. The ongoing increase in both short and long-term gas prices due to concerns about LNG projects and Russian imports has impacted the UK power market, with prices for Winter 2024 rising by approximately 20% in May, reaching a high of £93.75/MWh on May 31st, and currently at £88.00/MWh.
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