Brent has shed further as the market anticipates a relaxation of OPEC production limits

 Demand on the UK gas system climbed above the seasonal norm

As gas-fired power generation was called on to provide over 50% of GB power demand, demand on the UK gas system climbed above the seasonal norm yesterday. Wind generation dropped to just 2GW and the surge in gas-fired generation pushed overall demand to almost 320MCM. The system remained short throughout the day and prompt gas prices for the remainder of this week and next gained an average of 2.35p. The front month gained just over a penny while Q2 was up by 0.64p and the full Summer 21 contract gained 0.56p. Movement on seasonal contracts further out the curve was more modest, averaging just 0.29p.

 Carbon prices eased marginally on the day

GB baseload power futures recovered Friday’s losses on a combination of rising gas prices and higher demand on the day. The new front month power contract for April gained £0.20/MWh to £51.50 while seasonal contracts for Summer 21 and beyond gained an average of £0.28/MWh. Carbon prices eased marginally on the day. The day ahead baseload power contract jumped another £8.50/MWh as wind generation fell more than forecast yesterday. As wind struggled to generate 2GW, gas-fired generation was called on to provide some 53% of GB demand on Monday and wind is forecast to remain subdued today.

Crude oil prices fell for a third straight session

Crude oil prices fell for a third straight session on Monday with the new front month Brent contract for May shedding 73 cents to settle at $63.69 a barrel. West Texas Intermediate shed 86 cents to settle at $60.64 with the expectation that OPEC will ease production limits when it meets on Thursday of this week. WTI has fallen by 4.5% in 2 sessions, its biggest decline 2-day decline in 4 months. The decision facing OPEC is whether demand will pick up quickly enough with Covid vaccination and increase in economic activity to absorb an increase in production. Other major producers, including Russia, are pushing for a relaxation of production limits and U.S. production is almost certain to increase with prices anywhere above $50.00 a barrel.  

Prompt gas prices have edged higher

The requirement for conventional generating capacity to back-up wind generation is again starkly demonstrated this morning. Wind is contributing just 1GW to GB demand, leaving gas-fired generation to provide 57% of total demand with interconnectors to France and the Netherlands at maximum import rates. The Irish network is struggling in the absence of the Whitegate plant and is importing at maximum rates on Moyle and the East-West interconnectors. Prompt gas prices have edged higher again as the UK gas system is forecast 10MCM short today. On the oil market, Brent has shed a further 91 cents to $62.78 a barrel as the market anticipates a relaxation of OPEC production limits.