Negative prices always make big news, but they are usually a temporary result of a large investor getting stuck with expiring futures contracts. Futures expire on the 3rd Friday of the month, which was last Friday. Weird price movements on Friday and Monday should be expected, as gas suppliers, consumers, and speculators all transition to Nov delivery dates. They don’t mean anything; it’s random, financial derivative, noise.
Expiration Date
Trading will cease at the close of business two UK Business Days prior to the first calendar day of the delivery month, quarter, season, or calendar.
Snide remarks illuminate nothing. Differences in opinion are what make markets. Even so, Mr. Pilkington’s argument is fairly simple and hard to counter in general terms. Negative prices in gas markets are unusual, because storage is typically possible, but not unknown. They may arise as a consequence of the unwinding of futures contracts and other derivatives, especially close to terminal dates. Hence, they should not be regarded as a reliable indicator of the market-clearing price for gas over a longer period. Gas storage may be full but in a normal winter Europe consumes an amount equal to main pipeline capacity (before Nord Stream 2) plus drawdowns from storage. Supply this winter will be well below that level and no feasible amount of LNG deliveries will change the situation before next spring.
There has been an enormous amount of speculative interest in both electricity and gas markets over the last 6-8 months. Sharp upward and downward price movements may have been the result of such interest. At the moment the outturn for the next 6 months is highly uncertain, largely because it will depend so much on weather conditions as well as the impact of high expected prices on economic activity. That is, I believe, Mr. Pilkington’s point along with a warning not to attach too much weight to ephemeral spikes and troughs in spot market prices.
Yes, but in evaluating the quality of his response, one needs to factor in his perennial and well-known bias. Any positive news, no matter how small or transient, is bad news for Philip and his project fear agenda.
Aaron James
1 year ago
”Apr 26, 2020The investing world was gobsmacked and eyes glued to CNBC when oilfutures went negative last week. If you missed it the first time, don’t worry it could happen again. Oil storage around…’‘
Well two years later they were $130 a barrel. All it took was Biden-nomics. And you guys had Boris to destroy the entire economy – and now his ex-checker who oversaw it – is in charge. Remember Truss-nomics?
What you have is first day of Sunak-nomics, haha – you have the fox in charge of the henhouse with that guy in charge….
You mad Brits let Biden lead you to sanction Russia who supplies your Vital resources – and give their enemies high-tech weapons,
This is again – just a storage issue and processing issue, and Futures, and likely Derivatives and Margin Calls. Germany shut its metal smelters because it could not make metal with the energy prices – so they buy the metal they used to make, from China – who did not sanction Russia so still get affordable energy. You sure showed them. Gas prices will be back…..
I couldn’t agree with your comments more, so why the big noise about US prices recently going negative, temporarily? Crude was negative in spring 2020, and gas.
Anyway since persons unknown blew up the Baltic pipes the best Europe can hope for is buying,,,Russian LNG, but our pols would rather we freeze in the dark.
Walter Schwager
1 year ago
Numbers have been provided in a CNBC report. ,Around 10 PC of LNG tankers are on hold on the high seas, leading to a shortage of available tankers and a very rapid rise in day rates.
Jeff Andrews
1 year ago
What does the gas that will apparently be removed from storage be replaced by, a vacuum? These aren’t the old gasometers they are generally underground caverns use for pipe pressure stabilization so what is Herr Scholz propose to put in there, regasified America gas? Compressed air? I don’t think so, they’ve been using it as it’s entering the Euro market and relying on the tiny amounts coming from Turkey and the one Ukraine pipe still working. We’ll be in the dark before December, or the factories will have to close.
Jeff Andrews
1 year ago
What does the gas that will apparently be removed from storage be replaced by, a vacuum? These aren’t the old gasometers they are generally underground caverns use for pipe pressure stabilization so what is Herr Scholz propose to put in there, regasified America gas? Compressed air? I don’t think so, they’ve been using it as it’s entering the Euro market and relying on the tiny amounts coming from Turkey and the one Ukraine pipe still working. We’ll be in the dark before December, or the factories will have to close.
Negative prices always make big news, but they are usually a temporary result of a large investor getting stuck with expiring futures contracts. Futures expire on the 3rd Friday of the month, which was last Friday. Weird price movements on Friday and Monday should be expected, as gas suppliers, consumers, and speculators all transition to Nov delivery dates. They don’t mean anything; it’s random, financial derivative, noise.
Expiration Date
Trading will cease at the close of business two UK Business Days prior to the first calendar day of the delivery month, quarter, season, or calendar.
https://www.theice.com/products/6753280/JKM-LNG-PLATTS-Future
Philip, is that the standard futures expiration calendar for Europe? Pretty much all US options and futures expire on the 3rd Friday.
Unherd needs to find someone who understands the gas market if it wants to enlighten its readers.
Snide remarks illuminate nothing. Differences in opinion are what make markets. Even so, Mr. Pilkington’s argument is fairly simple and hard to counter in general terms. Negative prices in gas markets are unusual, because storage is typically possible, but not unknown. They may arise as a consequence of the unwinding of futures contracts and other derivatives, especially close to terminal dates. Hence, they should not be regarded as a reliable indicator of the market-clearing price for gas over a longer period.
Gas storage may be full but in a normal winter Europe consumes an amount equal to main pipeline capacity (before Nord Stream 2) plus drawdowns from storage. Supply this winter will be well below that level and no feasible amount of LNG deliveries will change the situation before next spring.
There has been an enormous amount of speculative interest in both electricity and gas markets over the last 6-8 months. Sharp upward and downward price movements may have been the result of such interest. At the moment the outturn for the next 6 months is highly uncertain, largely because it will depend so much on weather conditions as well as the impact of high expected prices on economic activity. That is, I believe, Mr. Pilkington’s point along with a warning not to attach too much weight to ephemeral spikes and troughs in spot market prices.
Excellent comment.
Yes, but in evaluating the quality of his response, one needs to factor in his perennial and well-known bias. Any positive news, no matter how small or transient, is bad news for Philip and his project fear agenda.
”Apr 26, 2020The investing world was gobsmacked and eyes glued to CNBC when oil futures went negative last week. If you missed it the first time, don’t worry it could happen again. Oil storage around…’‘
Well two years later they were $130 a barrel. All it took was Biden-nomics. And you guys had Boris to destroy the entire economy – and now his ex-checker who oversaw it – is in charge. Remember Truss-nomics?
What you have is first day of Sunak-nomics, haha – you have the fox in charge of the henhouse with that guy in charge….
You mad Brits let Biden lead you to sanction Russia who supplies your Vital resources – and give their enemies high-tech weapons,
This is again – just a storage issue and processing issue, and Futures, and likely Derivatives and Margin Calls. Germany shut its metal smelters because it could not make metal with the energy prices – so they buy the metal they used to make, from China – who did not sanction Russia so still get affordable energy. You sure showed them. Gas prices will be back…..
I couldn’t agree with your comments more, so why the big noise about US prices recently going negative, temporarily? Crude was negative in spring 2020, and gas.
Anyway since persons unknown blew up the Baltic pipes the best Europe can hope for is buying,,,Russian LNG, but our pols would rather we freeze in the dark.
Numbers have been provided in a CNBC report. ,Around 10 PC of LNG tankers are on hold on the high seas, leading to a shortage of available tankers and a very rapid rise in day rates.
What does the gas that will apparently be removed from storage be replaced by, a vacuum? These aren’t the old gasometers they are generally underground caverns use for pipe pressure stabilization so what is Herr Scholz propose to put in there, regasified America gas? Compressed air? I don’t think so, they’ve been using it as it’s entering the Euro market and relying on the tiny amounts coming from Turkey and the one Ukraine pipe still working. We’ll be in the dark before December, or the factories will have to close.
What does the gas that will apparently be removed from storage be replaced by, a vacuum? These aren’t the old gasometers they are generally underground caverns use for pipe pressure stabilization so what is Herr Scholz propose to put in there, regasified America gas? Compressed air? I don’t think so, they’ve been using it as it’s entering the Euro market and relying on the tiny amounts coming from Turkey and the one Ukraine pipe still working. We’ll be in the dark before December, or the factories will have to close.