Oil futures are on the rise thanks to the gradual reopening of regions throughout the US

18 May 2020

Seasonal contracts beyond the front winter saw some significant gains

Friday saw the UK gas system enjoy more balanced supply-demand than had been the case for some days. Demand on the system fell to near normal levels for this time of year as exports to mainland Europe were down significantly from levels of earlier in the week. With the comfortable supply-demand balance prevailing, prompt gas prices eased by an average of 0.30p. On the futures market, contracts for the remainder of the year recorded marginal movement in either direction with the front month finishing 1.39p lower week-on-week and Q3 down 1.76p. Seasonal contracts beyond the front winter saw some significant gains on the day with most up by over a penny week-on-week.

Carbon prices moving towards €20.00 per tonne again

GB baseload power prices for the remainder of the year finished lower week-on-week while contracts beyond the front winter finished higher. The futures market move-ment was largely in line with gas movement on the day and indeed, for the week. EU ETS unit prices gained for a second day with carbon prices moving towards €20.00 per tonne again. The day ahead price fell by almost £5.00/MWh as temperature and wind generation levels were forecast higher for today. The full week ahead price for this week was up by £0.625/MWh however as wind and solar generation levels for the remainder of the week are forecast mixed.  

The pace of recovery of U.S. crude oil futures quickened on Friday

The crude oil market rally continued on Friday with Brent crude gaining $1.37 to settle at $32.50, up 5% week-on-week. The pace of recovery of U.S. crude oil futures quickened on Friday, with the front month contract for West Texas Intermediate gained $1.64, up 5.9%, to settle at $29.52 per barrel. This was the highest settlement for the contract since April 13. Oil futures are on the rise thanks to the gradual reopening of regions throughout the US, which traders expect will boost gasoline consumption. The recovery in the Brent crude price is slower, reflecting the more cautious reopening of business in other parts of the world.    

 The recent recovery in oil prices is based on estimated increase in demand

Demand on the UK gas system has fallen below the seasonal norm as exports to the Netherlands ceased over the weekend. The system is forecast 6MCM long over forecast demand of 180MCM for today. Prompt contracts have yet to trade this morning but bid-offer spreads on near futures contracts indicate some minor gains will materialise in early trading. The strengthening in oil prices seen towards the end of last week is continuing with Brent crude up by over a dollar to currently trade at $33.68 a barrel. The recent recovery in oil prices is based on estimated increase in demand as many countries ease Covid-19 restrictions on business and travel but could be reversed if there is a resurgence in infection.