Private-sector activity in the euro zone continued its downward trend for the second consecutive month in October, with declines primarily driven by the economies of Germany and France. Despite ongoing concerns about economic uncertainty, the UK experienced an unexpected increase in retail sales in September, bolstered by strong demand for consumer technology. Meanwhile, the FTSE 100 dropped to 8,100 points by late October, marking a three-month low. This was due to weak global growth forecasts and concerns that the UK’s budget could stoke inflation, potentially delaying any interest rate cuts by the Bank of England.
Oil markets have once again seen high volatility this month, largely due to ongoing geopolitical tensions. The January Brent contract peaked at $80.50 in early October, but as the risk premium associated with the Middle East decreased significantly, prices fell back to $74.00. According to Goldman Sachs, Brent is expected to average $76 per barrel in 2025, owing to sufficient supply, ample spare capacity among major producers, and the continued flow of Iranian oil, which remains undisrupted. However, stronger demand from China could push prices upward, as its manufacturing activity expanded in October for the first time since April, suggesting that recent stimulus measures may be beginning to take effect.
Egypt is set to issue another tender to purchase between 15 and 20 LNG cargoes to meet demand for the first quarter of 2025, following its summer purchase of 30 cargoes and another 20 for delivery in the current quarter. Meanwhile, a new floating LNG storage and regasification unit off Greece's northeastern coast began commercial operations this month. This unit, moored near Alexandroupolis, is poised to supply gas to eight countries, including Bulgaria, Romania, Serbia, Hungary, and Ukraine. Europe also received its first cargo of Mexican LNG earlier this month at Rotterdam’s Gate terminal. The shipment, transported by the Energos Princess, was loaded at a floating plant offshore Altamira, which started operations in August and sources its gas from the US.
Despite much warmer-than-average temperatures throughout October, European gas storage levels only increased by 1.2% during the month. This brings storage to 95.2% full, with Germany leading at 98.0%. The smaller-than-expected increase is attributed to lower-than-anticipated wind generation, unplanned outages in the North Sea, and fewer LNG deliveries than forecast.
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The UK government announced a significant 35% budget increase for its energy department, which includes key allocations of £2.3 billion to support large-scale hydrogen production across 11 planned projects. Additionally, £21.7 billion has been committed over 25 years for carbon capture and storage initiatives, and £2.7 billion will go towards continuing the development of the Sizewell C nuclear project and funding for small modular reactors. In a notable development, Britain has also become the first G7 nation to end coal-fired power production with the closure of its last plant, Uniper’s Ratcliffe-on-Soar in the Midlands. This milestone is part of the country’s broader goal to reach net zero emissions by 2050 and to decarbonise the electricity sector by 2030.
Despite the warmer-than-average temperatures, short-term power markets have remained strong due to low levels of wind generation. Prices are expected to rise further next week, as forecasts predict continued calm conditions across Europe.
Volatility in the gas market has been on the rise recently. Prices surged late last week before falling again, driven by lower perceived supply risks from the Middle East, forecasts for warmer temperatures in early November, and an uptick in Norwegian gas production. The December contract is currently trading at 99.00 pence per therm (ppt), after reaching 111.50 ppt in late October. Meanwhile, the Summer 2025 contract has fallen by nearly 10.00 ppt this week, now trading at 93.00 ppt. However, this dip is likely a short-term correction and may present a buying opportunity. Supportive factors, such as Egypt’s tender for up to 20 LNG cargoes, delays at new LNG exporting plants in North America, and the scheduled end of Russian gas imports via Ukraine from 1st January, are expected to maintain a tight supply-demand balance in the coming months.
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