Global gas markets remain volatile following record highs yesterday. Prices are trending lower as an embargo on Russian gas exports seems unlikely.

Here is Rystad Energy’s daily gas and LNG market note from Senior Analyst Kaushal Ramesh:

Volatility is the word of the day for global gas prices as the market backs down from its recent panic, with prices plummeting after record highs earlier this week, but still soaring above long-term normal levels.

An outright ban on Russian gas exports remains up in the air, leading to the market correction witnessed today, with prices falling off a cliff as a result.

The all-time record high of €345/MWh that the TTF reached on Monday was not sustainable, and prices have since collapsed to around €200/MWh.

Although a significant drop, prices remain grossly inflated compared with what many would consider ‘normal’ levels or around €90/MWh.

With intensifying hostilities in Ukraine and three rounds of unsuccessful negotiations, clamors for an embargo on Russian oil are only intensifying.

Russia has threatened to retaliate to Western sanctions by halting flows through Nord Stream 1, a risk that appears at least partly priced into the market at this point.

Germany, on the other hand, remains reluctant to ban Russian energy exports, which the markets may read as a bearish signal.

Nevertheless, the West has emphasized that all options for sanctions remain on the table.

Upside risk on oil prices from a widely implemented ban on Russian oil could reflect in similar price movements on the TTF as well.

Fundamentals are no longer the key driver of the market.

We observed a ~4% day-on-day increase in Russian flows to Europe, with flows at Mallnow back in Westbound mode, flowing ~25 MCMD.

This is partially balanced by Norwegian flows which are down ~1.8% compared to yesterday.

On the LNG front, Russian and non-Russian-linked vessels with Russian origin cargoes are able to be diverted to Belgium, France, and the Netherlands if turned away in the UK or Lithuania, suggesting these volumes may still enter the European gas network.

Near-term temperature forecasts have been revised upwards, and the outlook for wind generation has improved materially.

In February, wind generation matched nuclear generation as the largest source of power in Europe, with both producing around 60TWH for the month.

Asian buyers have taken a wait-and-see stance in the face of unprecedented surges on the TTF.

Spot market activity is expected to be sparse until prices have returned to more acceptable levels, though declining inventories and production disruptions may force a few reluctant purchases.