Carbon prices continue to edge higher

 Demand on the UK gas system rose above the seasonal norm yesterday

Demand on the UK gas system rose above the seasonal norm yesterday as wind generation slumped and gas-fired plant provided 53% of total power demand. Despite the high demand levels, the system remained well-supplied with line pack forecast to increase by 18MCM in the morning and still forecast 8MCM long at close of business. Movement on the prompt gas market was mixed with the spot price gaining 0.50p but day ahead easing by 0.20p. Tuesday’s tentative increase on the UK futures gas market gained traction on Wednesday with gains ranging from 0.50p to 0.80p across the futures curve with strengthening oil prices again providing the upward impetus.  

 Wind generation averaged less than 3GW on Wednesday

The front month GB power contract eased marginally but prices for Q1 21 and beyond all tracked oil and carbon prices higher yesterday. Brent crude gained almost $1.50 a barrel and EU ETS unit prices were up by 72 cent, with the 2021 contract finishing at just over €25.00 per tonne. The day ahead baseload power price shed most of Tuesday’s big increase, shedding £9.75/MWh to settle at £43.75/MWh. The reversal came despite forecast low wind availability for the remainder of the week. Wind generation averaged less than 3GW on Wednesday.  

West Texas Intermediate gained 4%

The oil market strengthened for a third consecutive session on Wednesday as U.S. inventory data showed a big decline in oil reserves last week. A decline in stock levels is usually taken as a sign of increasing demand and with U.S. equities rallying yesterday, West Texas Intermediate gained 4% to close a $39.15 a barrel. The likelihood of Russia extending production cuts until April 2021 in light of coronavirus shut downs was another positive for the market yesterday. Brent crude gained almost $1.50 to settle at $41.23 a barrel and WTI gained by the same amount.

The recent rally on the oil market has stalled overnight

Demand on the UK gas system remains above the seasonal norm with cooler weather and weak wind availability. With wind generation below 3GW again this morning, gas-fired plant is supplying 19GW or just over 50% of GB power demand. The UK gas system is again well-supplied, and line-pack is currently forecast 11MCM long. Bid-offer spreads on the prompt gas market are too wide to give any definitive price indication but near futures are on the increase again this morning. The Q1 21 contract is up by 0.45p. The recent rally on the oil market has stalled and Brent crude is down 40 cents overnight. Carbon prices continue to edge higher with the 2021 EU ETS unit price at $25.50 per tonne.