The day ahead baseload contract surged higher

 Little evidence of any major improvement in the supply situation

Massive gains in gas prices for the winter months resulted in a cumulative increase of over 33% over the first 4 days of last week.  The market turned on Friday with the new front month contract for November shedding 9.92p but the contract was still up by over 25% week-on-week.  There is little evidence of any major improvement in the supply situation, however.  Norway has announced increased production at the Troll and Oseberg fields but as the Langeled line, which feeds gas from these fields to the UK, has little scope to increase flow-rates, any additional gas will likely flow to mainland Europe.  It is also worth noting that no additional Russian gas has been booked to flow to Western Europe this month, suggesting that the main hope for additional supply lies in LNG.

 Some easing of near futures power prices

There was some easing of near futures power prices on Friday as gas prices eased and inter-connector links were strengthened.  The 1GW Brit-Ned link returned from planned maintenance on Friday and the new 1GW North Sea Link between Norway and the UK began commissioning on the day.  Carbon prices gained €1.05 per tonne day-on-day. The day ahead baseload contract surged higher again as wind generation levels were forecast to fall over the weekend and for this week.  The jump of over £50/MWh was well beyond the influence of the forecast fall off in wind however and reflected the ongoing volatility due to tight supply margins.

 Brent and West Texas recorded gains on Friday

Crude oil threatened the $80 a barrel mark early last week but fell back a little mid-week before settling above $79.00 again on Friday.  A strengthening dollar has kept lid on the upside for crude in the past 2 weeks and the greenback settled at a 12-month high of 1.15 against the euro on Friday.  Increasing demand has seen current supply levels appear short of late and there is strong speculation that OPEC will raise previously agreed production increases for the remainder of the year when they meet today.  Despite the speculation, both Brent and West Texas recorded gains on Friday, but week-on-week movement was negligible.

 Remaining winter months are on the rise again

As temperatures picked up over the weekend, UK gas demand has fallen back from Friday’s levels of over 200MCM, despite lower wind availability.  The gas system is currently forecast 22MCM long with exports to mainland Europe running at 37MCM.  Langeled flows have reached a new high as production from the Troll and Oseberg fields has been stepped up.  An early softening in gas futures at market opening has been reversed and hopes of a continuation of Friday’s easing now seem misplaced.  The November contract is up by 6.00p and remaining winter months are also on the rise again.  Crude oil prices are little changed but EU ETS unit prices have gained over €2.00 over Friday’s closing prices.