While trading activity remains somewhat subdued by the ongoing August holiday period, a healthy fundamental outlook has pulled gas prices lower, particularly for the remainder of the summer.
European storage levels have already surpassed their peak from last year, limiting future injection availability. This is expected to result in a sharp drop in exports from the UK to the Continent, from the current high levels. The potential for oversupply has particularly weighed heavily on the front-month September contract.
The gas system has been oversupplied for much of the week. Ongoing Norwegian maintenance has not had a significant effect on UK imports from the region, which were already at reduced levels, in line with weaker demand.
Winter 16 gas prices have also weakened after a better than expected outcome from testing at the Rough storage site. While stock levels remain significantly down on last year, Centrica announced 20 wells will be available for withdrawals from 1 November – the operator’s best-case scenario. This will improve the pace of delivery possible from the storage site, although additional gas will still need to be sourced from elsewhere to meet demand.
The extent to which extra gas will be required remains uncertain with weather forecasts for the winter period unclear at present. A cold start to the winter could boost demand, increasing prices, particularly if the UK needs to compete with European markets for gas imports.