Gas winter months contracts remain at near record highs

Prompt gas prices rose strongly

Falling oil prices helped to stem the further rise in near futures gas prices yesterday.  The forecast decline in renewable power generation materialised on Monday with renewable sources providing just 10% of GB power demand leading to increased gas demand on the day.  While the system remained comfortably supplied, prompt gas prices rose strongly as a result with gains averaging 2.80p.  Near futures eased for a second consecutive session with the front month actually down marginally over the past 5 sessions but contracts for the winter months remain at near record highs of over 110.00p for mid-winter months.  

 The front month baseload power contract eased

The front month baseload power contract eased yesterday but contracts for all winter months were up slightly.  In a change from the recent pattern of strong gains on the front month, it is now the mid-futures market which is seeing the strongest gains.  Q4 21 settled above £110/MWh and the full Winter 21 contract above £108/MWh, both recording new record highs. The day ahead baseload price gained a further £6.68/MWh as renewable generation fell off and is set to remain low this week.  Renewable sources provided just 10% of GB power demand on Monday, compared to 40% on Friday and renewable are forecast to supply just 12% today.  

 The oil market continued its bearish run

The oil market continued its bearish run with big intra-day losses before recovering somewhat towards close of business on Monday.  Brent crude fell as low as $67.60 intra-day but rallied later to settle at $69.04 a barrel.  The U.S. benchmark, West Texas Intermediate, saw even greater intra-day slippage, trading below $65.00 before settling at $66.48.  The renewed spread of the coronavirus in the U.S., particularly in states where vaccination levels are low, as well as in Asia, is slowing the pace of economic recovery.  This, in turn, is slowing the recovery in oil demand at a time when producers are pumping more.  

Crude oil has also rallied following yesterday’s decline

Demand on the UK gas system has increased as a result of lower renewable power availability and the system is currently forecast 3MCM short for today.  Renewables are providing just 12% of power generation this morning while gas-fired plant is generating 48% of demand.  The prompt gas market has yet to respond but near futures contracts have rebounded following yesterday’s modest easing with gains averaging 3.00p for the remaining months of this year.  Crude oil has also rallied following yesterday’s decline and Brent crude is up by a dollar overnight to currently trade at just over $70.00 a barrel.