EU confirmed its target of 55% reduction in emissions by 2030

The recent volatility on the UK gas market is likely to continue

With the UK gas supply outlook not looking any better for the remaining summer months, the recent volatility on the UK gas market is likely to continue while carbon prices fluctuate as they have been of late.  The longer-term supply outlook is reflected in the relative stability of prices beyond the front winter with Nordstream 2 coming on-line. The volatility on European gas markets which was so much in evidence last week continued as prompt and near futures gas prices at the NBP moved significantly lower yesterday.  Carbon emission prices were to the fore in leading gas prices lower as EU ETS unit prices shed €2.20 per tonne.  Prompt prices fell by an average of 6.00p while futures contracts for the coming 9 months shed an average of 5.50p.

 GB power futures fell back on Monday

GB power futures fell back on Monday reflecting losses on the gas and carbon markets on the day.  While near futures contracts tracked gas market losses closely, contracts further out the curve saw more significant losses than their gas counterparts due to the heavy losses in carbon. The day ahead shed £3.75/MWh on lower gas prices and forecast improved renewable generation for today.  Renewable generation contributed just under 2GW yesterday and is forecast to exceed 4GW today.  

Crude oil prices eased on Monday

Crude oil prices eased on Monday, continuing the recent see-saw pattern of price movement around the $75.00 mark.  Brent crude fell by 39 cents to settle at $75.16 a barrel.  The market is weighing increased demand in the U.S. and Europe as strong vaccination roll-out allows economies to reopen against a worrying resurgence of Covid-19 cases in Asia.  The overall positive demand outlook for oil was tempered by uncertainty over carbon pricing as the EU confirmed its target of 55% reduction in emissions by 2030.  Measures to achieve this will include curbing the dependence on oil and gas with new carbon taxation measures to be announced this week.

 Crude oil has recovered yesterday’s loss

News that the trans-Baltic Nordstream 2 pipeline from Russia to Germany is to begin commissioning next month appears to have brought some respite in the recent gas market volatility.  While it will be the end of the year before commercial operations begin, the news is likely to take some pressure off winter and Q1 2022 prices.  The historically low storage situation in the UK may well see prices at the NBP at a premium to Western European markets for the winter period.  For today however, prices are down by around a penny in early trading.  Crude oil has recovered yesterday’s loss and carbon prices have recovered somewhat in overnight trading.