Carbon and oil prices have fallen overnight

 Some decoupling of gas and carbon prices

While low temperatures and a high wind-chill factor ensured strong demand for heating yesterday, overall demand on the UK gas system fell below 300MCM as wind generation rose sharply.  A further surge in carbon prices pushed power prices higher on Thursday but the UK gas market resisted the upward pressure.  The increase in wind availability saw demand on the UK gas system fall, leaving the system over-supplied by close of business.  Prompt contracts eased, as did near futures as the outlook for LNG supply and the storage situation in the UK have improved.  Yesterday’s gas price movement, at least on the prompt and near futures market, showed some decoupling of gas and carbon prices.

 Baseload power futures posted further gains

Baseload power futures posted further gains as EU ETS prices surged by €2.00 to new record highs of €75.00 per tonne while UKA’s also hit new highs of over £70.00 per tonne.  The soaring cost of UKA’s is likely to trigger the Cost Containment Mechanism for December in which more allowances would be issued. The day ahead baseload power contract shed £2.00/MWh as wind generation is forecast to exceed 12GW today.  By contrast, the week ahead gained £10.50/MWh as temperatures are forecast to fall further below the seasonal norm next week.

Oil prices remained range-bound on Thursday

Oil prices remained range-bound on Thursday as the markets assessed the minimal volumes of crude being released from strategic storage by the largest consuming countries.  The volumes are not considered to be of any great significance in countering rising prices, particularly in light of a slow-down in demand growth as more countries re-impose lockdowns.  Of more concern will be the decision of OPEC+ on whether to increase production quotas when they meet next week.  Such a decision seems less likely if demand growth is slowing.  Brent crude eased fractionally on Thursday, shedding 3 cents a barrel, while WTI was down 29 cents to $78.10 a barrel.

 Demand on the UK gas system fall to seasonal normal levels

A further increase in wind generation overnight has seen demand on the UK gas system fall to seasonal normal levels despite prevailing low temperatures.  Wind generation has risen to 12.75GW on the GB power grid and the UK gas system is forecast 20MCM long for today.  The healthy supply-demand situation is playing on prompt and near futures prices and while no definitive trades have yet been recorded on the prompt, near futures contracts have shed over 5.00p in early trading this morning.  Carbon and oil prices have fallen overnight with Brent crude down $3.60 a barrel to currently trade at $78.60.