John Kemp

BRENT spot prices have surged to more than $125 per barrel as the security situation in the Strait of Hormuz and the Red Sea deteriorates and cuts crude exports from countries around the Persian Gulf. Tanker transits through the Strait remain severely disrupted by attacks on ships in the waterway. Saudi Arabia’s East-West Petroline, the main by-pass for the Strait, has now been halted following drone attacks. Rising crude prices are compounding near-record crack spreads to push fuel prices higher for businesses and consumers:

EUROPE faces winter with high gas prices as Strait of Hormuz remains closed to LNG tankers: https://t.co/GO6ZHBmRr6

EUROPE’s benchmark gas futures prices have climbed above €80 per megawatt-hour for the first time since the initial trading day of 2023. Even after adjusting for inflation, front-month TTF futures are trading at the highest level on record other than the sixteen months immediately before, during and after Russia’s invasion of Ukraine in February 2022. The region’s storage fill remains at the lowest on record for the time of year which will increase its dependence on LNG imports from the spot market to maintain supplies during the winter of 2026/27:

BRENT calendar spreads have swung into a ferocious backwardation as attacks on shipping escalate around the Strait of Hormuz and Saudi Arabia’s oil installations on the Red Sea are hit by missiles and drones launched from Yemen. The six-month futures spread is trading in a backwardation of $15 per barrel up from flat or a small contango at the start of July before the ceasefire between Iran and the United States broke down. Traders increasingly anticipate a prolonged disruption of exports from around the Persian Gulf that will tighten crude inventories through the end of the year and into 2027:

Europe’s gas users brace for more pain this winter Europe is facing another winter with exceptionally high gas prices thanks to the prolonged conflict between the United States and Iran and closure of the Strait of Hormuz, coming up top of the continued war between Russia and Ukraine. EU gas storage facilities are less than two-thirds full, with only a few more weeks of the regular replenishment season to go before the heating season begins, which has sent prices climbing to the highest for over three years. Storage facilities were filled to just 66% of their capacity on September 3, compared with an average of 83% on the same date in the last ten years, and the lowest in records dating back to 2011. Low stocks will make weather-driven price spikes more likely and in the event more severe as the region scrambles to secure extra LNG from the spot market ... This is a short extract from my newsletter emailed to clients earlier today. If you would like to read my newsletters in full, three times a week, you can subscribe via my website https://t.co/aW1Xb1tAI9

BRENT spot prices have risen to the highest for more than a month in a sign oil exports from the Middle East remain severely disrupted despite efforts to re-open the Strait of Hormuz. Dated Brent prices for one week ahead have climbed over $100 per barrel for the first time since late July and before that early June. Physical prices are rising even faster than futures and the backwardation is steepening – all indications the market is short of physical barrels despite efforts to shuttle crude through the Strait or bypass it entirely by redirecting crude flows through the Red Sea:

Record U.S. gas output forces prices lower for longer U.S. gas production continues to grow as output is boosted by the increasing amounts of associated gas coming from oil wells in the Permian Basin underlying Texas and New Mexico. Production has accelerated faster than the completion of new liquefied natural gas (LNG) terminals leading to the accumulation of surplus inventories and putting downward pressure on prices. Production is increasingly a by-product of oil drilling and is becoming more sensitive to the price of crude rather than gas itself — weakening the feedback mechanism within the gas market ... This is a short extract from my newsletter emailed to clients earlier today. If you would like to read my newsletters in full, three times a week, you can subscribe via my website https://t.co/aW1Xb1tAI9

HEDGE FUNDS and other investment managers have raised their bullish net long position in Europe’s benchmark gas futures and options contract to a four-week high as the region is set to miss storage targets ahead of next winter. Funds held a net long position equivalent to 253 terawatt-hours in the Dutch TTF contract on August 21 up from a recent low of 154 TWh two months ago when there was optimism about a resumption of LNG exports from the Persian Gulf:

Europe’s gas supply will be tight this winter despite El Niño Europe’s benchmark gas futures have climbed to the highest for three and half years as traders become increasingly concerned about the low level of gas in storage. The war between the United States and Iran has kept the Strait of Hormuz largely closed to liquefied natural gas (LNG) tankers longer than expected and tightened gas supplies worldwide. As a result, the window for replenishing inventories with a surge of storage injections in late summer or early autumn at much lower prices has now effectively closed ... This is a short extract from my newsletter emailed to clients earlier today. If you would like to read my newsletters in full, three times a week, you can become a subscriber via my website https://t.co/aW1Xb1tAI9

HEDGE FUNDS and other money managers remain very bearish about the outlook for U.S. natural gas despite prices already well below $3 per million British thermal units and well below the threshold needed to encourage generators to switch from coal to gas. Fund managers held a net short position in the two most important futures and options contracts equivalent to 631 billion cubic feet (15th percentile for all weeks since 2010) down from a net long position of 2,143 bcf (76th percentile) a year ago: