Strengthening on the gas market bolstered by increase in carbon prices
01 December 2020
Demand on the UK gas system fell below the seasonal norm yesterdayWith rising temperatures and increased wind availability, demand on the UK gas system fell below the seasonal norm yesterday. An early supply surplus of 40MCM was gradually reduced as supply fell back and demand increased over the course of the day. Increased wind availability helped reduce gas demand for power generation but despite the positive supply-demand balance, prompt gas prices strengthened again with day ahead gas up 1.55p and the week ahead contract gaining 1.15p. Futures contracts out to Winter 21 continued to increase with gains averaging over a penny.
The GB power market gained for a fifth consecutive dayThe GB power market gained for a fifth consecutive day with prices for the remaining winter months up by over 10% week-on-week. The ongoing strengthening on the gas market was bolstered by an increase of €1.00 per tonne in carbon prices which saw EU ETS unit prices finish above €29.00 per tonne yesterday. The volatility on the prompt power market eased with the day ahead baseload power contract virtually unchanged. The increase in gas and carbon prices was countered by falling demand and a big increase in wind generation, which averaged 10GW yesterday.
Crude oil prices have risen by 28% over the last 4 weeks on the expectation of increased demand as countries exit lock-down once widespread immunisation takes place. That process has yet to begin however and many major economies are still seeing worsening trends and tighter lockdowns. Assuming demand will pick up some time next year, the market balance will remain dependent on any loosening of production cuts by OPEC and others. The cartel meets today and is expected to extend production cuts, at least for Q1 21. Prices are likely to remain rangebound until that meeting takes place and Brent crude shed 50 cents yesterday to settle at $47.59 a barrel.
Crude oil prices have risen by 28% over the last 4 weeks