Crude oil prices rebounded somewhat

 The rise in demand was mainly down to a further decline in wind generation

The UK gas system ran between 5 and 10 MCM short yesterday as demand rose to 345MCM, or 50MCM above the seasonal norm. Below normal temperatures drove heating demand higher but the rise in demand was mainly down to a further decline in wind generation which averaged just 1GW as gas-fired generation was required to provide 55% of GB power demand on the day. Despite the system shortfall, within day gas fell by 1.85p and the day ahead contract shed 1.15p. On the futures market, the front month was down by 1.72p and the full Summer 21 contract by 1.12p. Losses on Winter 21 and seasonal contracts beyond were marginal.  

 Carbon prices reversed most of Tuesday’s gains

Baseload power futures eased on Wednesday as gas and carbon prices fell with the front month down by £1.35/MWh and the full summer contract easing by £0.95/MWh. Carbon prices reversed most of Tuesday’s gains with EU ETS unit prices settling in a range between €37.42 and €38.28 per tonne. Better supply margins on the GB system saw the day ahead price fall back to more normal levels following Tuesday’s spike to £105/MWh. The day ahead settled at £57.90/MWh yesterday as gas and carbon prices eased and despite a paltry contribution of less than 1GW of wind generation yesterday.

West Texas Intermediate was up by $1.56 to $61.28 a barrel

Crude oil prices rebounded somewhat on Wednesday on rumours that OPEC is content with current price levels and may not, as expected, raise production quotas when they meet today. Brent crude gained $1.37 to settle at $64.07 while West Texas Intermediate was up by $1.56 to $61.28 a barrel. The dilemma facing OPEC and other major producers is that by raising production, they risk upsetting the delicate supply-demand balance which has been achieved by restraining production. It may be that the major producers will wait a little longer to see if a recovery in economic activity will bring significant increase in demand before loosening production restraints.

 Brent crude has eased slightly as a decision from OPEC on production quotas is expected

Demand on the UK gas system remains well above the seasonal norm and the system is forecast 10MCM short today. Gas-fired power generation is delivering almost 60% of power demand as wind generation is struggling to rise above 2GW. Unlike yesterday, when the market ignored the elevated demand and supply shortfall, prompt gas prices are moving higher this morning. Spot and day ahead prices are up by 1.30p and 1.40p while the front month has gained 0.71p overnight. On the oil market, Brent crude has eased slightly as a decision from OPEC on production quotas is expected later this morning.