The availability of Russian gas during the Summer remains the key issue and is driving risk premium into contracts

28 April 2021

Front and near-term contracts added 3.00p in premium as an issue emerged regarding gas flows through Ukraine

The UK NBP gas market has a very benign opening on Tuesday with some near-term contracts posting minor gains in early trading.  While there were some restrictions on the gas side due to maintenance issues in the North Sea, the gas system was relatively well supplied with a surplus of 8MCM being predicted.  The slack market did not last for long with volatility returning just before mid-day as contract began to firm significantly.  Over a very short period, front and near-term contracts added 3.00p in premium as an issue emerged regarding gas flows through Ukraine.  Concerns regarding availability of capacity for Russian exports to Europe caused an immediate spike in prices.  

Baseload power prices firmed on the day on higher gas and carbon costs

GB baseload power futures recovered the remainder of the premium that was lost on Friday last as gas led gains came into the baseload power market.  There is no doubt that power fundamentals continue to be reliant on gas fired generation and the direction of baseload power prices bear this out.  On the day CCGT gas generation dominated the power stack with over 54%.  Baseload power prices firmed on the day on higher gas and carbon costs. The front month May contract added £2.35 which closed at £65.15/MWh.  Across the remainder of the curve contracts were up by £1.88 on average.

Crude oil prices moved higher during yesterday’s market as competing pressure of new Covid 19 related shutdowns

Crude oil prices moved higher during yesterday’s market as competing pressure of new Covid 19 related shutdowns and doubts about OPEC’s ability to maintain production cuts gave mixed signals.  The Brent crude contract for June 2021 delivery traded to a high point of $66.45 and a low of $64.66 during the session.  This narrow trading range saw many market participants stay on the sidelines as they tried to assess what the outcome of the OPEC teleconference would be and the likely impact on production quotas.  At market close the Brent crude contract settled at $66.42 a barrel having traded in a narrow range of just 79 cents.

The UK gas market has continued the bull run into this morning

The UK gas market has continued the bull run into this morning market with all contract opening higher.  It is clear that doubts on the availability of Russian gas during the Summer remains the key issue and is driving risk premium into contracts. The front month May contract has added 1.73p and is changing hands at 56.53p per therm. All other Summer months are up by similar amounts.   On the supply side gas demand is coming in at 224MCM and the system is operating with a surplus of 16MCM.  The relative system comfort is not influencing the prompt which is following the futures market higher.  Crude oil markets are stable with prices on par with last night’s close.