LNG: Winter Weather Forecasts Driving Gas Prices
Jan-29 00:23
European gas rose 1.25% on Tuesday to EUR 48.22 off the intraday high of EUR 48.83. It is still down 2.5% this week and almost 1% this month. Supply disruptions and cold weather supported prices. Temperatures are forecast by Maxar to fall towards average at the start of February at a time of reduced capacity in Norway and lower expected wind-generated power. Inventory drawdowns have been at a faster pace this winter than last.
- Morgan Stanley estimates that Europe will have to increase LNG imports by 35% y/y over April-September, a time of increased cooling demand in Asia, to achieve its refilling targets. It has begun talks with the US to increase imports from there to avoid tariffs on European shipments to the US.
- There have been discussions to allow gas from Azerbaijan to flow through Ukraine to Europe but they remain vague and Bloomberg believes the impact on supplies would be minimal. The EC says that talks with Ukraine are ongoing.
- US natural gas fell sharply on Tuesday driven by forecasts of higher-than-average temperatures for the eastern US. The February contract, which expires today, fell 8.9% to $3.37 to be almost 18% lower this week and down 8.6% in January.
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US TSYS: Cash Bonds Slightly Mixed After Friday’s Heavy Close
Dec-30 00:12
TYH5 is 108-13, -0-01 from NY closing levels.
- Cash US tsys have opened to the week slightly mixed across benchmarks after closing last week with another heavy session.
- The US tsy 10Y yield climbed to 4.625% (+4bps) on Friday - the highest since late May'24.
- Markets will be closed on Wednesday for the New Year's Day holiday; otherwise, they will have full sessions for the balance of the week. Data includes MNI PMI and Pending Home Sales on Monday, FHFA housing data on Tuesday, weekly claims and construction spending on Thursday, and ISMs on Friday.
JGBS: Futures Cheaper As US Tsys Weigh
Dec-30 00:08
In early Tokyo trade, JGB futures are weaker, -15 compared to settlement levels.
- Cash US tsys have opened to the week slightly richer across benchmarks after closing last week with another heavy session.
- The US tsy 10Y yield climbed to 4.625% (+4bps) on Friday - the highest since late May'24.
- US tsy curves forged steeper as the short end outperformed on Friday: 2s10s +4.274 at 29.303, 5s30s +1.979 at 35.496.
- Short-end bid helped projected rate cuts into early 2025 gain slightly vs. Friday morning levels (*) as follows: Jan'25 steady at -2.7bp, Mar'25 -13.3bp (-13.1bp), May'25 -18.5bp (-17.7bp), Jun'25 -26.5bp (-25.7bp).
- Tsy futures had pared losses early on Friday after Wholesale Inventories came out lower than expected w/ modest down-revision to prior. Retail Inventories in-line with expectations while the Advanced Goods Trade Balance came out a little wider than October's, with the $102.9B shortfall above $98.3B prior (and $101.2B expected).
- Today, the local calendar will see Jibun Bank PMI Mfg data.
LNG: European Gas Prices Higher As Expiry Of Ukraine Transit Deal Approaches
Dec-29 23:54
Natural gas prices were higher on Friday due to colder weather and the approaching end to flows of Russian gas through Ukraine into Europe, which account for around 5% of overall European demand, according to Bloomberg. European prices rose 4.5% to EUR 47.77 after a low of EUR 46.65 early in the session. They are little changed this month.
- Slovakian PM Fico has pressured European Commission President von der Leyen to find a solution to the end of the Ukraine transit agreement. His country remains dependent on these flows and he has threatened to cut off electricity to Ukraine in retaliation, which Poland has said it would replace. Von der Leyen remains committed to the phasing out of the EU’s use of Russian fuels.
- Russian President Putin has also said that it would be impossible to sort a new contract to allow gas through before the current one expires on December 31. Ukraine refuses to negotiate with Russia but is open to considering alternatives proposed by the EU.
- European gas storage levels are currently at around 75% (Bloomberg).
- The US March Henry Hub contract rose 3.1% on Friday to $2.97 and has started this week higher at $3.15. It is up 1% in December. The start of January is forecast to see colder weather moving into the central and eastern US.
- EIA-reported inventories fell 93bcf, slightly less than expected, and they remain around 5% above the 5-year average. US lower-48 gas production was 1.3% y/y higher on Friday while demand rose 6.6% y/y. Flows to LNG terminals have been lower and fell 1.6% on the week.
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