European Energy Markets:
Wishful thinking
In short: Highly volatile energy markets expected with no clear direction. Eventual upside likely.
Last week was a lesson in how fast this market can talk itself into a deal. The energy markets priced a peace in Iran that nobody has agreed.
Democrats swept Congress and traders did the maths: Trump has to fold. As a result, TTF, NBP and Brent dropped around 17% last week.
Look at what happened while we were away from our screens. The US set up a task force to cut Iran’s supply routes over land and across the Caspian. A US aircraft disabled a cargo ship trying to run the blockade. Tehran scrapped its limits on ballistic missile range. Two tankers may have hit mines.
Then there’s Trump. On Monday he said ‘no’ to post-election strikes. By Thursday it was a threat to “destroy the rest” of Iran and “You’ll know soon enough.”
EU storage is about eight points below last year. And there is going to be more competition for LNG with Asia throughout winter.
TTF, NBP and German power have all tested key support last week. More losses seem unlikely. We might start this week with a volatile shift sideways before pushing for early-November highs again.
Our algos confirm this with a shift into non-trending regimes for key gas markets. That usually leads to heightened volatility, fakeouts and a high degree of indecision. Now is not the time to have an aggressive directional stance.
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TTF Sentiment Benchmark
We recorded the second-highest bullish reading in at least three years a week ago at 71%. At the start of this week, however, the market turned decisively indecisive.
Uncertainty surrounding the Iran conflict is the main reason for the indecisive market.
The near-even split between bullish and bearish traders is in alignment with our proprietary algos that signal a high degree of indecision ahead.