Volatility continues to prevail on the European gas market

Near futures prices gained up to 30.00p

The recent volatility on European gas markets reached new extremes on Wednesday with prices for the winter months finishing at new record highs.  Having broken above 150p per therm on Friday last, UK gas prices for the mid-winter months traded at almost 200p for much of the day yesterday.  Near futures prices gained up to 30.00p in early trading on Wednesday but a late reversal saw these gains totally eliminated, although official settlement prices still showed gains of over 12.00p day-on-day.  Despite any adverse fundamentals on the day, prompt gas prices at the NBP were up by an average of 6.22p as the surge in futures prices continued amid ongoing fears for the adequacy of winter supplies.

 EU ETS unit prices eased

Further tightening of GB power supply margins saw the day-ahead price peak at £480/MWh on Wednesday but falling slightly to settle at £454/|MWh.  The ongoing spiral in gas prices was compounded by a fire on the 2GW French inter-connector rendering it fully offline.  Wind generation struggled to reach 1GW, adding to system tightness yesterday. GB power futures continued to break new ground recording fresh month, quarter and season ahead prices on Wednesday.  Near futures contracts averaged gains of almost £20.00/MWh on the day.  EU ETS unit prices eased by a further 30 cent to settle below €60.00 per tonne yesterday.

  Crude oil prices broke out of the recent tight range

Crude oil prices broke out of the recent tight range which has prevailed for over 2 weeks as Brent crude settled above $75.00 for the first time since August 30.  West Texas settled above $72.50 for the first time this month as new concerns over supply arose from the impact of the latest tropical storm in the Gulf of Mexico.  Storm Nicholas has caused more onshore refining capacity to be shut-down in addition to that not yet recovered from Hurricane Ida.  Yesterday’s weekly inventory data from the U.S. Energy Information Administration showed crude oil inventories down by 6 million barrels last week and a similar drop in distilled product.  While much of this is a result of lower production and refining capacity in the wake of the hurricane, the market still responded bullishly yesterday.  

Sharp decline in gas prices evident just before trading ceased

The sharp decline in gas prices which was evident just before trading ceased yesterday has continued.  The front month contract was down by 10.60p in early trading this morning but has since relinquished half of that loss as volatility continues to prevail.  The UK gas system is well-supplied and is forecast 17MCM long for today.  Norwegian deliveries have increased further and are currently supplying two-thirds of total UK demand.  Wind generation remains below 1GW and gas-fired power generation accounts for almost 50% of total gas demand this morning.  Oil prices have eased fractionally overnight but Brent continues to trade above $75.00 a barrel.