Gyrating O.T.C. prices render market snapshots almost out of date very quickly although hopefully this table will crystallise how the O.T.C. market has reacted to events in Ukraine so far and the extent to which forward prices have changed:
|Dated Brent Crude||$121/bbl (10th Mar, 2022)||$53/bbl (4th Jan, 2022)||$65/bbl (2nd Jan, 2021)|
|Year ‘22 Gas||437 p/th||47 p/th||36 p/th|
|April Year ‘22 Power||£404/MWh||£56/MWh||£44/MWh|
In short, prices continued to strengthen along the forward curve following Russia’s invasion of Ukraine. Commercial buyers holding out for the market to fall, if just in time before the ‘hard close’ of the ongoing April Year 2022 Buying Round will have been left very disappointed to date with every sign that the conflict will escalate. With the UK recently vowing to supply Ukraine with state-of-the-art SAM missiles, in spite of relation warnings by Russia and American official refusal to supply hardware to Ukraine via Poland amid the plodding if relentless Russian advance on Kiev.
On Thursday, 10th of March, the morning witnessed an early breakdown of the most formal, high-level ceasefire talks to date. The question for the market immediately is what happens to Russian supply. So far, all long-term gas supplies have been honoured by Gazprom including European buyer flexibility bestowed under contractual 90% Take-or-Pay conditions.
But whilst the chance of wilful default by Russia may look remote at this point, what the market can’t discount is the prospect of a force majeure event which could exonerate Gazprom contractually in the event of a physical gas supply cut, irrespective of any commercial embargo. Such an event might be initiated by a renegade army faction or Ukraine itself, possibly in last ditch attempts to draw NATO countries further into the conflict. There are no positives on the news front bar that the April Year O.T.C. prices contracts are at least retreating as we go to transmission. But the coming days look uncertain to say the least. This partially explains increasingly fragile market liquidity, record reported bid-offer and steep risk-premiums built into forward prices quoted along the near end of the forward curve.