The oil market reacted to new travel restrictions

UK gas futures for the coming 12 months rose sharply

UK gas futures for the coming 12 months rose sharply over fears for LNG supply in the short term and a weakening pound in the longer term. A forecast cold spell in Japan and Korea for January has seen LNG demand in these 2 major markets increase sharply, leaving the European markets struggling to price-match for shipments. The lack of agreement on a Brexit deal and the emergence of a new Covid-19 variant in the UK has seen sterling weaken further, adding upward pressure on prices. The front month and Q1 contracts both gained over 3.00p and prompt gas prices gained between 4.50p and 5.00p on the day.    

The rise in power prices came despite a further easing in carbon prices

GB baseload power futures tracked gas market movement yesterday with the front month gaining £2.10 and Q1 £1.90/MWh. The rise in power prices came despite a further easing in carbon prices. EU ETS unit prices remain above €30.00 per tonne, however. The day ahead baseload power price stepped sharply higher as prompt gas prices gained over 10% on Monday. Lower wind generation levels forecast for today and the remainder of the week saw a greater reliance on increasingly expensive gas-fired generation.  

Crude oil prices fell by over $3.00 intra-day

The oil market reacted to new travel restrictions imposed by over 40 countries as a result of the new strain of Covid-19 identified in the UK. The new restrictions will immediately impact the aviation industry and there is no certainty surrounding their possible duration. The steady rise in crude oil prices last week, stemming from optimism over renewed demand as vaccines are rolled out, was abruptly halted on Monday. Crude oil prices fell by over $3.00 intra-day with Brent crude dipping to $49.20 but the global benchmark rallied late-on to settle $1.35 lower at $50.91 a barrel. The U.S. benchmark, West Texas Intermediate, settled $1.33 a barrel lower at $47.74.  

The gas system is finely balanced this morning

Demand on the UK gas system is down on yesterday’s level as milder weather prevails. Power demand has also fallen, and wind generation has dipped to 4GW. The new Covid-19 restrictions in the UK are having a negative impact on demand, at least while mild weather persists. The gas system is finely balanced this morning and while prompt gas contracts have yet to trade, early gains on the futures market suggest a continuation of yesterday’s price rise. The front month is up 1.45p to top 50.00p for the first time in 12 months. The oil market is moving in the opposite direction with Brent crude trading just above $50.00.