Another volatile week in the markets has seen geopolitics grow more fractious at the same time as the supply and demand fundamental picture improves.
As Russia’s war against Ukraine passes into its fifth year, peace continues to look elusive. Talks between Russian and Ukrainian diplomats were held in Geneva but ended after just two hours on 18th February, with the chief Russian negotiator and Ukraine’s Volodymyr Zelensky indicating they had been “difficult.”
On 17th February, Iran’s Fars news agency announced partial closure of the Strait of Hormuz for training exercises by Iran’s Revolutionary Guard. A bullish surge following the collapse of talks and the reported Hormuz closure saw the Summer 26 gas contract gain 14% in just two days. Geopolitical risk around Hormuz remains elevated, with the US amassing the largest military force assembled in the region for more than 20 years. Softening language by Iranian and American representatives has seen modest reductions in risk premia during w/c 23rd, with Donald Trump’s State of the Union address on 24th February suggesting his “preference” is to resolve the standoff with Iran with diplomacy.
Strongly improved temperature forecasts have eased European fears over historically low gas storage levels. Both the UK and the wider North West Europe region are now on course to enjoy temperatures at-or-above seasonal average levels well into March 26. EU gas storage fullness overall had dropped to 30.59% by 25th February, but warmer forecasts now indicate markedly lower withdrawal rates for the remainder of the winter period.
Amid a current lack of certainty around future direction of the market, investment funds exited both long and short positions during w/e 20th February. Funds exited 12.7TWh of longs and 12.7TWh of shorts on the TTF as per the Commitments of Traders report on 25th February.
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