Does the US election work bearish for LNG?

The majority of energy markets opened weaker today, Wednesday. At 9 o'clock, the electricity front year base and the TTF gas front year were both down by around 1.6 percent. The Oil Market was trading sideways at this time. Since then, prices have risen somewhat. The TTF gas front year is only 0.2 percent lower, the electricity front year base is 0.9 percent lower.

Today, ICE Endex publishes the COT reports for EUAS and TTF Gas. There have only been a few changes recently, particularly with regard to the positioning of speculators. While this IMGAS market held a high net long position, it was a net short position in the CO2 market.

Bullish weather in the short term — outage in Norway

Short-term weather forecasts have barely changed overnight. It will be below average cool over the weekend and the wind energy supply will remain below average for the next seven days — except Friday, November 1. Although photovoltaics are currently delivering above average and, according to forecasts, until November 11, this cannot compensate for the below-average wind energy supply at this time of year. While average temperatures in Germany are still around 2 degrees above average this week, recent data from Montel Analytics shows that they could fall to 4.4 to 5.6 °C in the coming week. The temperatures would therefore be 1.3 °C below the long-term average.

An unplanned outage at the Skarv gas field in Norway reduces capacity by 5.5 million cubic meters per day. The duration of the disruption is currently unclear.

“mild winter” baseline scenario

The analysis firm ICIS expects gas storage facilities to fall to 45 percent at the end of the heating season at the end of March. The prerequisite for this forecast is normal demand patterns and the arrival of the current mild weather forecasts. The forecast also does not include any unplanned delivery failures, for example from Norway. European gas demand is expected to rise by 11 percent compared to last winter and a fall in LNG landings of 3 percent. However, demand is still below the five-year average. After the energy crisis, industrial demand continues to recover (with the exception of the German — see review) and household demand is returning to temperature-dependent consumption patterns.

Media Report on a Possible Winter of the Century

According to media reports, for example on n-tv (“The cold is knocking soon - Is Germany threatened by a winter of the century? “), possibly an extremely cold winter with lots of snow and permanent frost. However, meteorologists believe this scenario is unlikely. In the coming weeks, Northern Europe expects blizzards and the East expects frost, while Central Europe is adjusting to normal autumn temperatures. Long-term forecasts, such as those from NOAA and MetOffice, predict rather mild winter months with warmer temperatures. The particularly high humidity this winter could result in larger amounts of snow during cold snaps, but this would be a particular weather event and does not indicate an extremely cold overall winter. A real winter of the century in Germany would only be possible due to a rare disturbance of the polar vortex — but this is currently considered unlikely. The latest weather models show a stable polar vortex, which is more likely to rule out extreme cold waves in Germany. It is therefore very likely that Germany will once again experience a mostly mild winter, which will only bring brief cold periods.

Goldman Sachs sees US election bearish for LNG

Goldman Sachs warns that the upcoming US elections could pose a downside risk to the global LNG market, particularly if US sanctions or tariff policies change. This could influence LNG supply and put pressure on gas prices in Europe and Asia. Increasing Russian supplies and lower demand from China could further weigh on LNG prices. Should US tariffs remain on Chinese commodity stability, China's economic stimulus program could strengthen gas demand. An election victory by Donald Trump, on the other hand, could lead to higher tariffs and weigh on China's LNG imports. From an EnerChase perspective, Europe would certainly also suffer from Trump's tariffs, but the bearish argument appears conclusive in the event of a Trump election victory, especially since he is a strong supporter of the oil and gas industry. However, it is also feared that rising domestic gas prices in the USA due to high LNG exports will be combated by Trump in order to secure favorable energy prices for his voters. Export duties on LNG, for example, would be a means here. As a result, in addition to the open outcome of the elections on November 5, it is also difficult to say what effect the mix of political measures will really have. Government interventions are always associated with side effects. However, in terms of tendency, the markets are likely to bearish Trump's victory as a first step.

Geopolitics and the US Election

The US election also remains in focus with regard to the current global sources of conflict. Geopolitical analysts suspect that Israel acted more cautiously ahead of the US election to support Biden's share price. After the election, there could then be another attack. So far, “only” Iranian air defenses have been severely damaged and are therefore interpreted as a preliminary retaliatory strike. At the same time, according to media reports, Israel's PresidentAnjahu is apparently ready for a ceasefire in the Gaza Strip if Hamas releases a number of hostages.

In turn, the Financial Times reports that Ukraine and Russia are negotiating to stop attacks on energy facilities in both countries. As a result, geopolitics currently remains a highly dynamic risk and the US election in particular at an important anchor point. Possible negotiations are thus faced with a possible further retaliation from Israel, which unsettles the markets. The reduction in the risk premium is therefore unlikely to be very significant for the time being.

Conclusion

Weather forecasts will support energy markets over the next few days, but forecasts have not changed significantly recently. The brief cold snap is therefore likely to be priced in. The fallout in Norway is small. The market appears to be continuing to seek direction and is likely to remain highly volatile ahead of the US election. We remain neutral even today.

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Following the sharp price slide of the previous day, the energy markets have been trading sideways so far on Wednesday. Equity markets in China plummeted significantly overnight after the government's full-bodied stimulus package yesterday proved to be a disappointment. The Hang Seng Index in Hong Kong lost 9.4 percent. In mainland China, the CSI 300 lost 7.4 percent. Energy markets are eagerly awaiting the publication of ICE Endex's COT reports for EUAs and TTF today. Gas flows from Norway continue to rise slowly; there are no new major disruptions.

Is there anything else coming from China?

The development of the Chinese economy is decisive for the energy markets; China is the largest energy importer worldwide. The disappointment apparently spread to the European energy markets yesterday. The press conference on the first working day after the “Golden Week” was eagerly awaited, but disappointed many experts. “Investors had high expectations that the authority would announce additional and concrete stimulus measures today,” Frederic Neumann, chief economist for Asia-Pacific at Bank HSBC, told Handelsblatt on Tuesday. “From the outset, however, it was unlikely that these expectations would be met at today's press conference.” The state planning authority is not responsible for preparing concrete economic stimulus packages in China's politics. It is therefore possible that the government in Beijing will announce or at least hint at further measures in the coming weeks. “The longer the delay, the higher investors' expectations of a financial package could become, increasing the risk of renewed disappointment,” Neumann added.

Weather extremes on the way

The coming days will be turbulent: extreme rainfall and significantly increased wind volumes are forecast for Germany. It will be windy tomorrow in particular, with feed-ins at twice as high a seasonal level. While it will be significantly milder today and tomorrow than the long-term average, temperatures on Friday and Saturday will fall well below normal levels, accompanied by above-average PV volumes. Among other things, the former Hurricane “Kirk” is responsible for the extremes. There is a warning of storm and landslide risks. Once again, a lot of wind volume is forecast for Sunday. On the spot electricity market, the high volume of renewables is putting pressure on quotations. The longer-term temperature forecasts should also be considered bearish. The second half of October and the beginning of November appear to be milder than average.

The situation in the USA is becoming more threatening: The densely populated west coast of Florida is preparing for Hurricane “Milton.” More than a million people were ordered to evacuate. Hurricane “Helene” had already caused damage in the region just two weeks ago. According to forecasts from the National Hurricane Center, Milton is expected to hit land near the Tampa Bay metropolis, where over three million people live. Milton is classified as an extremely dangerous hurricane and could cause significant damage with wind speeds of up to 250 kilometers per hour, including power outages lasting several days. A storm surge with waves of up to four and a half meters in height is expected. The energy plants on the coast of Texas and Louisiana are apparently being spared this time, but offshore platforms have already been closed to protect workers, such as Chevron's Blind Faith plant (see also illustration).

Geopolitics risk: oil prices of over 350 US dollars/BBL?

Even though the Israeli retaliation against Iran has so far failed to materialize, we expect it to happen in the coming days. As a result, continued high volatility is expected. Israeli Defense Minister Galant was supposed to travel to Washington for talks at the Pentagon today. However, his prime minister, Netanyahu, ordered his whereabouts. According to US news site Axios, Israeli Prime Minister Netanyahu did not want to approve his Secretary of Defense's trip until the Security Cabinet decided on a response to the Iranian missile attack and the head of government did not talk to US President Biden. The phone call is scheduled for today.

The risks for energy markets would be enormous if escalated. The Strait of Hormuz is seen as a major bottleneck for oil transit and connects oil producers in the Middle East with global markets. Analysts see a blockage or interruption of oil flows through the Strait of Hormuz as “the worst scenario” that could cause oil prices to rise well above 100 US dollars/bbl per barrel.

conclusion

We maintain our neutral assessment. Maintenance in Norway is coming to an end and the medium-term temperature forecasts look mild. However, geopolitical risks are currently significantly increased and increased volatility is expected.

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