Driving oil futures higher is news of an alleged attack on a Saudi Aramco distribution station

24 November 2020

Last week’s decline in gas prices came to an abrupt halt on Monday

Last week’s decline in gas prices came to an abrupt halt on Monday as near futures contracts recorded strong gains, supported by an ongoing rally on the oil market. The front month was up 1.76p and Q1 by 1.41p while the full year 2021 contract gained 0.84p. The main impetus for the market upturn was increasing optimism that Covid-19 vaccines will help to see economic restrictions removed, an optimism which saw oil prices hit 8-month highs on Monday. Prompt gas prices were also turned higher yesterday. Early gains were boosted by a late supply deficit which saw prompt prices rise by between 2.50p and 3.00p across the board.

 

Strengthening gas, oil and carbon prices pushed GB power futures higher on Monday

Strengthening gas, oil and carbon prices pushed GB power futures higher on Monday. The front month gained £2.00/MWh and Q1 was up by £1.05/MWh. Movement beyond the Summer 21 period was more limited with gains averaging £0.20/MWh despite a rise in carbon prices which rose by 50 cent to settle above €27.00 per tonne. The day ahead contract eased a little as wind generation levels are forecast to rise today. Wind contributed 8GW on average yesterday and are expected to average over 10GW today. Coal entered the generation mix for the first time in any substantial way, adding 1GW to the generation mix yesterday.  

 Oil prices hit 8-month highs on Monday

The main impetus for the upturn in energy prices was increasing optimism that Covid-19 vaccines will help to see economic restrictions removed, an optimism which saw oil prices hit 8-month highs on Monday. Brent crude gained $1.10 to settle at $46.06 while West Texas Intermediate was up 65 cents to $43.06 a barrel. Also driving oil futures higher is news of an alleged attack on a Saudi Aramco distribution station in Saudi Arabia which was claimed by Yemeni insurgents. The attack came within hours of a secret visit by outgoing U.S. Secretary of State Pompeo and Israeli Prime Minister Netanyahu to meet Saudi’s Crown Prince Bin Salman.  

Crude oil continues to strengthen

Demand on the UK gas system fell back overnight and is currently at 242MCM as forecast colder weather has not yet materialised. Increased wind availability has reduced gas-fired generation demand slightly but gas remains the dominant source of UK power generation this morning. Forecast deliveries are currently running 8MCM long and while the spot price is not yet showing any movement, the day ahead contract is up by 0.85p to align with the front month contract which has retraced a little of yesterday’s strong gain. Crude oil continues to strengthen with Brent crude up a further 34 cents to trade at $46.40 a barrel.