Speculation is growing that OPEC and Russia are likely to increase production quotas

23 February 2021

The positive supply-demand balance saw prompt and near futures gas prices fall again

Heating demand fell below 200MCM for a weekday for the first time this year. Although gas-fired power demand remained high due to low wind availability, overall demand on the UK gas system averaged just over 250MCM and deliveries maintained a 5MCM cushion throughout the trading day yesterday. The positive supply-demand balance saw prompt and near futures gas prices fall again on Monday. Prompt prices fell by an average of 2.50p while the front month was down 2.00p to 40.00p. Both Quarter 2 and Summer 21 contracts settled below 40.00p as futures prices eased across the board.  

  GB power futures again tracked gas prices lower despite gains on both the carbon and oil markets

GB power futures again tracked gas prices lower despite gains on both the carbon and oil markets on Monday. The front month contract fell by £1.55/MWh to £51.85 while Q2 finished at £50.00 flat and Summer 21 settled below £50.00 for the first time in 2 months. Carbon prices recovered slightly with EU ETS unit prices gaining 55 cent. The day ahead contract shed £10.00/MWh as wind generation is forecast to recover substantially today.Wind generation contributed under 5GW on Monday but is forecast to at least double that level today.

The market is expecting a big decline in U.S. oil inventories

The steady rise in crude oil prices resumed on Monday with Brent crude settling above $65.00 a barrel for the first time in 13 months. Speculation is growing that OPEC and Russia are likely to increase production quotas for Quarter 2 but, with the recovery in economic activity still uncertain, prices are unlikely to increase dramatically in the short term. Brent crude settled at $65.24 a barrel, more than recovering losses incurred towards the end of last week. The U.S. benchmark, West Texas Intermediate, gained $2.25 to $61.49 a barrel. The market is expecting a big decline in U.S. oil inventories due to last weeks storms and this drove Monday’s bullish moves.

 The oil market remains in bullish mode

The forecast increase in wind strength has materialised and wind generation levels on the GB power system have doubled overnight. With wind contributing 32% of power demand and gas-fired plant just 24%, overall demand on the UK gas system has fallen to 220MCM and the system is forecast 16MCM long today. Early trades on the gas futures market show a modest uptick in prices this morning with the front month finding support at just over 40.00p. The oil market remains in bullish mode and Brent crude has gained a further 80 cents to currently trade at $66.04 a barrel.