latest surge in carbon prices pushed power prices for the coming 12 months to new life-of-contract highs

17 May 2021

 UK gas prices recorded strong gains on both prompt and futures contracts on Friday

UK gas prices recorded strong gains on both prompt and futures contracts on Friday with the prompt gaining additional support as the gas system experienced a supply deficit for most of the afternoon.  Carbon was again the main driver of gas prices following a minor reversal on Thursday when EUA prices dipped on the day.  The bull run resumed on Friday with contracts gaining over €2.00 per tonne to hit fresh highs of €56.50 to €58.12 per tonne.  The rebound on the gas market saw contracts for the current summer months finishing round 10% higher week-on-week.  Movement on contracts beyond the front winter was more modest with gains averaging just 0.32p on Friday.    

  Power futures have maintained an upward trajectory for 4 months now

The latest surge in carbon prices pushed power prices for the coming 12 months to new life-of-contract highs on Friday.  Contracts for the current summer months finished around 10% higher week-on-week.  Power futures have maintained an upward trajectory for 4 months now and with cooler temperatures forecast for the rest of May, the bull run is likely to continue. The day ahead baseload price eased by £3.00 as renewable generation is forecast to increase today and over the course of this week.  Wind generation was contributing less than 0.5GW on Friday and is expected to rise to just 2GW today.  

 Crude oil recovered most of Thursday’s slippage

Crude oil recovered most of Thursday’s slippage as the oil market took a lead from the general bounce on the stock markets and a weaker dollar on the day.  While the impact of the week-long Colonial pipeline shut-down is still being felt in the Eastern United States, crude oil movement has seen little disruption and the market has refocused on economic recovery and currency exchange rates, with the Covid situation in India still ringing alarm bells for demand in the third-largest global consuming nation.  Brent gained $1.66 a barrel on the day to finish little changed week-on-week.    

Carbon prices have eased a little but remain above €55.00 per tonne

Demand on the UK gas system is forecast at some 30MCM above the seasonal norm for today as temperatures remain below normal and wind generation is subdued.  A big increase in storage injection rates, following weeks of withdrawals, has also added to the overall demand and the system is currently forecast 4MCM short.  Despite the supply deficit, the spot price has shed over 2.00p in early trading and the front month is down by a similar amount.  Carbon prices have eased a little but remain above €55.00 per tonne while crude oil is virtually unchanged from Friday’s settlement level.