Oil prices moved higher yesterday as the market continued its post-OPEC+ meeting recovery. ICE Brent settled more than 2.5% higher yesterday, which saw it close well above $81/bbl. As we mentioned following the meeting, the action taken by the group leaves the market with a sizeable deficit in the third quarter of the year, supporting the view that prices trend higher. A recovery in refinery margins would leave us even more confident that prices move meaningfully higher from current levels. The weakness in refinery margins over the second quarter will have raised concerns over demand.
Front-month Henry Hub futures have broken above $3/MMBtu for the first time since January. Prices have strengthened on the back of forecasts for warmer weather across parts of the US. In addition, the US market is set to tighten in the medium to longer term. Low prices have weighed heavily on drilling activity, and US natural gas output is expected to fall marginally this year. Lower output comes ahead of the ramping up of new US LNG export capacity later this year and through 2025.
In Europe, TTF settled almost 3.5% higher yesterday. This strength is despite Norwegian flows returning to normal levels following an unplanned outage last week. EU storage is also very comfortable at 72% full, similar to the level seen at the same stage last year and well above the 5-year average of 61%. In addition, Bloomberg is reporting that the EU is in talks to keep Russian gas flowing via Ukraine. Gazprom’s transit deal with Ukraine expires at the end of this year, and Ukraine has made it clear on several occasions that it has no intention to extend the deal. Russian gas flows via Ukraine total around 15bcm on an annual basis.
