Tightness on the oil market was again in evidence on Friday

UK gas prices saw a third consecutive day of losses

Demand on the UK gas system fell-off on Friday as wind generation picked up and commercial demand fell heading into the weekend. UK gas prices saw a third consecutive day of losses with prompt and near futures contracts again leading the decline. The prompt market was led lower by a well-supplied system which maintained a 10MCM supply surplus for most of the trading day. Within day and day ahead prices shed a penny per therm while the front month was down by 0.84p. While the Winter 2020 contract shed 0.55p, losses on seasonal contracts further out the curve averaged just 0.25p.  

Baseload power futures moved in line with their gas counterparts

Baseload power futures moved in line with their gas counterparts shedding value for a third day in a row on Friday. The front month contract shed £1.25/MWh despite a rebound in carbon prices and further gains on the oil market. EU ETS unit prices for 2021 and 2022 moved closer to €30.00 per tonne. Prompt power contracts were down also as higher wind generation levels averaging 5GW are forecast for today and the rest of this week. The forecast arrival of 2 fresh shipments of LNG this week ensured prompt gas prices remained under downward pressure.  

Saudi Arabia is considering reducing its production

The recent tightness on the oil market was again in evidence on Friday as Brent crude recovered almost all of Thursday’s loss and the global bench-mark finished just 44 cents higher week-on-week. Friday’s increase came following news that Saudi Arabia is considering reducing its production cuts from 9.7 million barrels per day to 7.7 mbpl from August 1. Week-on-week movement in U.S. crude prices was equally constrained as West Texas crude moved above $40.00 a barrel again on Friday as drilling activity in the U.S. fell to an 11-year low. The U.S. market was also supported by a bounce in stock market prices on the day.    

Recent pattern of price movement on the oil market continues

The recent pattern of price movement on the oil market continues as increasing demand is countered by a proposed increase in production by Saudi Arabia. Brent crude has relinquished half of Friday’s gain to currently trade at $42.80 a barrel. Demand on the UK gas system is in line with the seasonal norm today and the system is currently forecast 25MCM long as Norwegian deliveries and LNG send-out have stepped up this morning. Trading on the UK gas market has been typically slow for a Monday morning with little movement in either direction suggested by bid-offer spreads.