Surge in gas prices has accelerated this morning

NBP futures at record highs yesterday

Forecasts for cooler temperatures from the weekend drove near curve NBP futures to record highs yesterday with many contracts trading above 300.00p per therm.  The market appears to have over-reacted to this news but the low levels of gas in storage across Europe has heightened concerns for supplies.  Wind generation is also forecast below the norm and so demand for gas fired generation is expected to increase also.  The front month settled at 293.91p, a gain of 48.04p on the day after a bullish session, while December along with January and February settled above 300.00p.  Prompt prices reacted to the near curve and were pulled higher as the spot and day ahead closed at 275.05p and 272.05p, settling at a discount of over 20.00p to the front month

 Higher carbon EUAs contributed to increases on the day

The record increases at the front of the NBP curve provided support for baseload futures yesterday while higher carbon EUAs also contributed to increases on the day.  The front month, November, settled at £282.00/MWh, up £34.50/MWh but the January contract claimed the greatest increase on the day, closing £42.35/MWh up at £291.35/MWh. Wind generation exceeded 9.0GWh on Tuesday but forecasts for lower output from the renewable source sent the day ahead contract higher by £84.28/MWh.  Generation from wind is forecast at 7.8GW for today and could be half that for the rest of the week.

Demand for oil is expected to increase

Having settled above the $80 a barrel mark on Monday for the first time since October 2018, Brent crude consolidated that gain and added a further $1.30 a barrel on Tuesday.  The market was still buoyed by OPEC’s decision not to increase production beyond the levels already set out. The group have an agreement to increase production by 400,000 barrels per day until April 2022 and would appear happy if the market remained undersupplied. Demand for oil is expected to increase as natural gas prices surpass the ‘switching’ point and could incentivise large industries to consider switching to oil.  West Texas Intermediate peaked at $79.48 a barrel yesterday before settling at $78.93, up $1.31 a barrel.

Looks like another day of extreme volatility

The surge in gas prices has accelerated this morning with near months opening over 100.00p higher, as November traded to a high of 407.82p.  The market has come back though with latest trades going through almost 40.00p down from the morning highs.  November last traded at 367.79p, while the summer-22 has eased back, with the last trade below yesterday’s settlement.  It looks like another day of extreme volatility ahead with large intra-day swings to be expected.  Prompt prices have yet to trade but the UK gas system is running with a 10MCM surplus to a demand of 202MCM for today.  Brent has reversed from an earlier high of $83.47 a barrel to $82.34 a barrel which is 22 cents down on last night’s close.