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17.11.2023 | European Energy Markets Monthly, November 2023

Abundant supply and subdued demand offset geopolitical risks

Andy Sommer


Following the trend of recent years, European energy markets experienced a rollercoaster ride over October, albeit short-lived compared to previously. The first half of the month saw energy prices surge, triggered by the escalating geopolitical risks of the Israel-Hamas war. However, prices plummeted as the month progressed, reflecting bearish fundamental drivers. Hydro balances in most central European markets improved significantly, reaching a comfortable surplus. Factors such as full gas storage, ample French nuclear availability, and persistent weak demand also contributed to the erosion of risk premium in various winter power contracts.


Geopolitical risks briefly amplified risk premiums across various energy commodities. Gas markets were no exception, despite loose balances and record-high storage levels. Specifically, the outbreak of the Israel-Hamas conflict prompted a reduction in gas exports from Israel to Egypt, leading to a decrease in Egypt’s LNG loadings. The looming risk of a broader impact on Middle East LNG supply and transit further propelled gas prices, introducing another twist to the rollercoaster ride. Additionally, incidents such as damage to the Balticconnector gas pipeline prompted memories of infrastructure sabotage, further elevating winter gas contracts.

Nevertheless, gas markets experienced a subsequent cooldown, leading to a decrease in prices. This downturn mirrored the prevailing bearish conditions, driven by an extremely warm October with limited heating demand. Moreover, indications that infrastructure damage in the Baltic Sea might not be intentional contributed to the downward trajectory. Subdued demand allowed daily EU net injections of gas into storage throughout the month, while there was even an excess of gas exported and stored in Ukraine due to EU oversupply. Similarly, coal markets accumulated risk premium at the outbreak of Israel-Hamas hostilities but later eased, reflecting substantial European gas inventories, substantial stockpiles of coal in China, and that nation’s subdued macroeconomic outlook.

Although crude oil markets followed a similarly inverted U-shaped price pattern to coal and gas, carbon prices proved an exception. EUA prices sustained their multi-month bearish trend, influenced by weak macroeconomic sentiment. This was exacerbated by the increasingly short positions of investment funds. At the same time, October marked the official start of the European Carbon Border Adjustment Mechanism (CBAM), designed to address imports of carbon intensive products.




This document is for information purposes only. None of the statements and notes constitutes a solicitation, an offer or a recommendation for conducting any transactions. No warranty, either expressed or implied, is given for the information contained in this document. Actions based on this document made therein are the responsibility of those who undertake them. All liability for damages, which may result directly or indirectly from the use of this document, is disclaimed.

The accuracy, completeness or relevance of the information which has been drawn from external sources is not guaranteed although it is drawn from sources reasonably believed to be reliable. Estimates regarding future developments and other forward looking statements regarding commodities and therewith connected derivatives mentioned in this document may be based on assumptions that may not be realized. Axpo reserves the right to change the views reflected in the document without notice and to issue other reports that are inconsistent and reach different conclusions from the information presented in this document.

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