Carbon prices recovered Tuesday’s losses

Near futures gas contracts at the NBP recorded significant losses for a second consecutive day

Demand increased with falling temperatures and a high wind-chill factor but remained well below the seasonal norm on Wednesday. The gas system was forecast 20MCM long in the morning and despite the rising demand, remained 7MCM long at close of business. Despite the positive supply-demand balance, prompt prices readjusted to recover around half of Tuesday’s big losses. Near futures gas contracts at the NBP recorded significant losses for a second consecutive day with prices for the remaining winter months down by just over a penny. Seasonal contracts for Summer 21 and beyond saw only marginal movement on the day.  

The day ahead contract gained marginally as wind generation is forecast lower for today

GB baseload power contracts for the remaining winter months tracked gas prices lower on Wednesday but rising oil and carbon prices lent support further out the curve. Carbon prices recovered Tuesday’s losses as EU ETS unit prices gained 55 cent to trade above €27.00 per tonne again. The day ahead contract gained marginally as wind generation is forecast lower for today and demand is increasing with temperatures falling to more normal levels for this time of year. The UK continued the recent trend of net importation of power, both from France and Ireland on Wednesday.  

The recent see-saw pattern on the oil market continued on Wednesday

The recent see-saw pattern on the oil market continued on Wednesday as crude oil gained over a dollar with Brent settling at $44.34 a barrel. The U.S. benchmark, West Texas Intermediate, recorded a more modest increase of 42 cents to settle at $41.82 a barrel as weekly inventory data showed crude oil stocks in the U.S. increased week-on-week. The increase in crude stocks was taken as a sign that new Covid-19 restrictions in the States were depressing demand for refined products. With U.S. and indeed global production levels still increasing, fears of renewed over-supply have emerged and it is quite likely that prices will retreat from Wednesday’s 11-week highs.  

The wider energy complex is also weakening with Brent crude backing off yesterday’s 11-week highs

Lower temperatures and wind availability have led to big increase in gas demand overnight. The UK system is currently forecast 10MCM short against demand of 250MCM. The gas market has yet to respond to the system imbalance with no trading on prompt contracts as yet this morning. The futures market is continuing the downward trend of the previous 2 days, albeit with more modest losses so far. The wider energy complex is also weakening with Brent crude backing off yesterday’s 11-week highs and carbon prices easing slightly this morning.