Cold weather drove heating demand higher

Cold weather drove heating demand higher but strong wind generation levels kept gas-fired power demand subdued. In fact, wind topped the generation stack on Tuesday. The UK gas system ran in surplus throughout the trading day as supply was bolstered by high levels of storage withdrawals. While storage would normally be replenishing at this time, the strong price increases of the past 2 weeks and Tuesday’s spot prices, lured storage holders to sell. The recent upward momentum on the gas market intensified on Tuesday as oil and carbon prices recorded strong gains on the day. Despite the healthy supply-demand situation, prompt gas prices still recorded gains averaging 2.50p and prices for the next 12 months averaged gains of 1.58p.  

 Carbon prices hit record highs

GB power futures recorded strong gains on Tuesday as gas prices strengthened and carbon prices hit record highs. EU ETS unit prices gained €1.80 per tonne, finishing in a range between €44.14 and €45.10 per tonne. Baseload power futures for the next 12 months gained an average of £1.65/MWh on the day. The day ahead baseload contract for Tuesday gained £6.00/MWh as temperatures remain below normal. Wind generation increased and topped the generation stack on Tuesday. The Brit-Ned interconnector remained off-line and is not expected to return to service until April 22.  

The oil market traded on Monday and recent volatility continued

The oil market traded on Monday and recent volatility continued as Brent crude shed $2.71 to settle at $62.15 a barrel. A partial recovery was seen yesterday as Brent gained 59 cents to settle at $62.74 while West Texas was up 70 cents to $59.33 a barrel. The market remains cautiously optimistic that increasing OPEC+ and U.S. production will not swamp the tenuous recovery in demand as economic activity increases with the wider rollout of Covid vaccination programmes. Attention will turn to U.S. inventory data due for release today as an indication of demand recovery or otherwise.    

The front month is down marginally in early trading

Demand on the UK gas system has risen significantly overnight as temperatures remain around 5 degrees below normal. Wind generation has dropped from 12GW yesterday to 8GW this morning, adding approximately 20MCM to gas-fired power demand. The system was finely balanced at 0900 and while within day gas has yet to trade, the day ahead contract has relinquished some of yesterday’s strong gains. The front month is down marginally in early trading but movement beyond Q2 is not yet discernible. Crude oil and carbon prices have eased a little overnight but EU ETS unit prices remain near record highs.