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Global equity markets responded positively to the Federal Reserve’s decision to cut interest rates by half a point in September. This move was designed to stave off further weakening of the US economy and its labour market. Meanwhile, in Europe, the European Central Bank made its second interest rate cut of the year, aiming to reignite growth in an economy that is losing momentum.
In the UK, inflation has remained stable, and additional interest rate cuts are expected. However, British consumers are growing more pessimistic as government warnings about the economy and public finances, which may result in higher taxes, are causing concern.
September saw considerable volatility in oil prices, with the Brent crude contract swinging between $68.70 and $77.60 per barrel, currently settling around $72.00. This was driven by several supply risks, including escalating tensions in the Middle East and disruptions caused by Hurricanes Francine and Helene in the Gulf of Mexico, both of which temporarily boosted the market.
However, prices have since receded amid persistent concerns about demand. The largest factor has been Saudi Arabia's reported plan to increase output from December, aiming to regain market share by underpricing more expensive oil production, such as US shale. This is expected to lead to a further decline in oil prices.
Egypt has recently issued a tender to purchase 20 LNG cargoes for winter delivery. This follows a previous acquisition of 30 cargoes during the summer, prompted by declining domestic gas production and rising electricity demand.
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On 19th September, an erroneous report claimed that Azerbaijan would transit gas via Ukraine in the coming year, causing prices to plummet. The October contract in Germany briefly dropped below €34.00/MWh, a two-month low. When the error was corrected, prices bounced back.
Despite ongoing maintenance at several North Sea gas fields and disruptions caused by Hurricane Francine in the Gulf of Mexico, gas storage levels across Europe remain high, with a 94.0% fill rate. German storages, in particular, are at 96.0%, which has been a bearish factor for gas prices.
In the UK, a record number of renewable energy projects were awarded funding this month under the Contracts for Difference (CfD) scheme. Among these 131 projects are two that will become Europe’s largest and second-largest wind farms—Hornsea 3 and Hornsea 4, located off the Yorkshire coast. These announcements followed the UK hitting a significant milestone: 30 GW of wind generation capacity, marked by the opening of a large project on the Shetland Islands.
In France, the nuclear regulator approved the start of Flamanville 3, which is set to gradually increase output and reach its full 1,600 MW capacity in the coming months. Additionally, EDF has increased its output forecasts at several other plants, revising the nuclear generation target for 2024 from 315-345 TWhs to 340-360 TWhs.
Meanwhile, UK carbon prices have dipped to their lowest levels since May, with the December 2024 contract currently trading at £36.00/tonne. This drop comes in response to the UK’s proposal to extend its system of free allowances under the emissions trading scheme by one year, allowing for better alignment with the introduction of a Carbon Border Tax. Power prices for Winter 2024 have fluctuated within a wide £12 range, ending the month down 13%, largely due to weaker carbon and gas markets.
Gas and power markets have seen heightened volatility recently. Prices initially fell sharply following the Azerbaijan/Ukraine gas transit news, only to rebound towards the end of the month due to several strong fundamentals. These include extended maintenance periods at North Sea gas fields, a cold snap affecting North-West Europe, and pre-emptive shutdowns in anticipation of Hurricane Helene in the Gulf of Mexico.
While these short-term fluctuations are notable, the medium-term outlook appears weak. Provided imports from Russia and Qatar remain stable, attention is likely to return to record-high gas storage levels, a robust supply of gas and power, and low industrial demand.
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