First increase in U.S. drilling activity since March

Falling demand left the UK gas system over-supplied

UK gas contracts responded to another drop in carbon prices on Friday, retracing some of the gains of previous days and leaving only the front month higher week-on-week. The August and September contracts eased fractionally but seasonal contracts shed up to 0.69p on the day leaving them between 1.11p and 2.45p lower over the week. Falling demand left the UK gas system over-supplied for much of the day on Friday and prompt gas prices eased as a result. The spot price fell by a penny while the day ahead and week ahead contracts shed 0.78p and 0.75p as the supply-demand outlook remains positive with 3 more LNG cargoes due to discharge at UK terminals in the coming week.  

Downward move in gas prices was further abetted by falling carbon prices

The downward move in gas prices was further abetted by falling carbon prices to pull GB power futures lower on Friday. The front month contract held fractionally above £30.00/MWh at the close while the front winter settled at £44.25/MWh or £1.60/MWh lower week-on-week. EU ETS unit prices shed almost a dollar on the day to finish in a range of €26.30 to €27.30 per tonne. A modest increase in the day ahead gas was enough to send day ahead baseload power higher despite a forecast for increased wind generation today. The full week ahead contract for this week eased slightly however as wind generation is forecast to average around 1GW higher week-on-week  

Fall in oil prices due to downturn in the U.S. dollar exchange rate

A further fall in oil prices due to the growing tension between the U.S. and China was outweighed by another downturn in the U.S. dollar exchange rate on Friday. Crude oil prices stabilised again after Thursday’s loss of almost a dollar a barrel and the global benchmark, Brent crude, gained just 3 cents on the day and was up just 20 cents week-on-week. The U.S. benchmark finished 20 cents higher day-on-day at $41.29 and 53 cents higher week-on-week. This week saw the first increase in U.S. drilling activity since March, but with demand recovery slowing, any increase in production is likely to put downward pressure on prices.  

 Crude oil remains locked in a tight trading range

Demand on the UK gas system is forecast at just under 150MCM for today and the system is currently comfortably supplied with Linepack forecast to increase by 8MCM. The normal slow start to trading on a Monday sees only the front winter contract showing signs of movement and that is marginally down based on current bid-offer spreads. Crude oil remains locked in a tight trading range and has eased by 18 cents overnight to trade at $43.18 a barrel. The UK gas and power markets will likely remain responsive to movement on the carbon market today but there is no significant change in EU ETS unit prices as yet this morning.