UK gas prices gained in sympathy with oil prices on Wednesday as a large container vessel ran aground

25 March 2021

Crude oil market spooked by grounding of container ship in Suez Canal

  Tuesday’s slump in crude oil prices was almost fully recovered on Wednesday as the markets were spooked by the grounding of a large container ship in the Suez Canal. With shipping, including oil and LNG tankers backed up on the southern end of the canal, concerns over short term supply to Europe drove Brent crude back up to $64.41, an increase of $3.62 a barrel day-on-day. Gas prices gained in sympathy with the oil market, but gains were limited as many LNG vessels bound for European ports this month had already cleared the canal. The front month gas contract at the NBP gained 0.78p and the full Summer 21 contract was up by 0.52p.  

The prompt market saw strong gains in early trading yesterday

UK gas prices gained in sympathy with oil prices on Wednesday as a large container vessel ran aground, blocking shipping movement through the Suez Canal. Considering the strong rebound in oil prices, the gains on the gas market were relatively modest with the front month gaining 0.78p and the full Summer 21 contract up by 0.52p. The prompt market saw strong gains in early trading yesterday but there was some easing as the day progressed and prices for the remainder of the week gained around a penny day-on-day. The system remained well supplied with a healthy supply outlook for the remainder of the month as LNG shipments due at UK ports for the next 7 days had already cleared the Suez Canal.

 Power prices expected to ease moving into Q2

GB power futures for the second quarter gained on Wednesday as gas prices strengthened but power prices are expected to ease moving into Q2 as demand reduces. Contracts for Q3 and beyond were mostly down day-on-day despite a further uptick in carbon prices yesterday. Prompt power prices fell as wind generation picked up and is forecast to remain strong into the weekend. With lower temperatures expected across Britain and Ireland over the next couple of days, demand is forecast to increase but will be offset higher wind availability.

Demand on the UK gas system fallen below seasonal norm

The blockage in the Suez Canal has been partially cleared and with vessels on the move again, the markets are more sanguine over the issue. Brent crude has relinquished some of yesterday’s gain and is trading 60 cents down on last night’s close at $63.80 a barrel. Demand on the UK gas system has fallen to 232MCM, well below the seasonal norm and the system is currently forecast 30MCM long. Despite the strong supply-demand situation, prompt gas prices at the NBP have gained somewhat in early trading this morning. Near futures contracts are up fractionally while the volatility on the carbon market continues with prices falling back again.