Losses on the gas curve fed into baseload power contracts

A significant sell off on gas contracts occurred

Further progress has been made in the process of allowing Gazprom to begin exports of Russian gas via the Nord stream 2 pipeline to Western Europe.  Germany’s Economy and Energy Minister released a positive assessment of the pipelines potential impact on supply security.  This outcome moves the issue along to the German Regulator who will decide if the project complies with German and EU law.  While there are still a number of steps in this process, the market responded positively to the news and a significant sell off on gas contracts occurred.  The November contract settled for the final time on ICE at 192.00p, down by 26.59p on the day.  Losses for December and Q1 2022 came in at 26.27p and 24.76p respectively.

GB baseload power futures extended losses for the second session

GB baseload power futures extended losses for the second session in a row as expectations of increased supplies of gas from Russia for the coming Winter send the NBP gas curve tumbling lower.  These losses on the gas curve fed into baseload power contracts which also shed premium on lower EUA carbon costs and a decline in spark spreads. The biggest impact was on near term Winter delivering contracts as the November contract shed £15.20 while Q1 2020 was down by £26.00 as it closed at £180.00/MWh.  Prompt power contracts were also hit as a high level of renewables added to the overall downward pressure.

Crude oil prices fell for a second session in a row

Crude oil prices fell for a second session in a row as the recent build in U.S. inventory stocks continued to provide direction.  The decline in crude oil prices continued despite the data being mixed in some aspects of the report.  While overall crude oil stocks grew, the decline in gasoline and distillate stocks would usually be indicative of growing demand and therefore price supportive.  Crude oil never traded above the previous settlement and the best it could do was $84.29 a barrel in the early part of the session.  The Brent crude contract settled at $84.32, down by 26 cents while WTI closed at $82.81 a barrel.

Downward price pressure continues to be exerted

Downward price pressure continues to be exerted on both the UK gas and power curves as expectations of increased gas flows to Western Europe for the coming Winter drives both markets.  The December gas contract takes over front month status today and it is down by 12.28p at 185.00p/therm in early trading.  The Q1 2022 contract remains under pressure, and it too is down by 11.60p.  The price pressure is feeding into baseload contracts which are trading lower by corresponding amounts. In the UK this morning gas demand forecast to be low at just 202MCM as mild weather continues across the region.  The system is running with a healthy surplus of 15MCM.