Crude oil has recovered most of yesterday’s slippage

European gas prices continued their seemingly relentless rise

European gas prices continued their seemingly relentless rise on Monday on concerns over low storage levels and the possible restriction of Russian supply.  Prompt and near futures gas contracts at the NBP gained around 25.00p on a combination of concerns over supply and a sharp rise in Asian LNG prices.  The front month pushed closer to 300p and the Calendar year 2022 topped 200p for the first time yesterday.  An early supply surplus on the UK gas system was steadily eroded on Monday as demand increased while deliveries remained constant.  Falling wind availability saw demand increase by 25MCM through the trading day while still remaining below the seasonal norm.

 Prompt prices continued to rise

The surge in UK gas prices fed directly through to the GB power market yesterday with gains averaging £21.50 on contracts for the remaining winter months.  Gains on seasonal contracts for Summer and Winter 22 were less steep but all futures prices gained with support from gas and rising carbon prices on the day.  The day ahead baseload power price jumped to a 10-week high of £262.28/MWh.  Despite warmer weather and lower demand, prompt prices continued to rise.  Lower wind generation forecast for the coming 10 days, and colder weather next week saw the week ahead rise to £340.00/MWh.

 Omicron variant of coronavirus caused the market to falter

The oil market began the week’s trading with gains on Asian markets early Monday, but the mood changed as currency markets saw the dollar strengthen against other major currencies on the day.  Increasing pessimism surrounding demand growth in light of new restrictions due to the spread of the Omicron variant of coronavirus also caused the market to falter and, having traded as high as $76.39 a barrel in the morning, Brent crude fell back to settle at $74.39.  OPEC have projected lower growth for Q4 but expect a pick-up in demand in Q1 2022 and no change in overall demand projections for the full year 2022.

Demand on the UK gas system remains below the seasonal norm

Demand on the UK gas system remains below the seasonal norm and, following a sluggish start, supply is forecast 7MCM long for today.  Gas-fired generation demand is picking up as wind availability declines and overall gas demand is forecast to increase later in the day.  Gas prices at the UK NBP are strengthening again this morning and the front month has breached the 300.00p mark.  The ongoing tension on the Russia-Ukraine border, coupled with below normal storage levels in Western Europe, is sustaining the bullish sentiment on the gas markets.  Crude oil has recovered most of yesterday’s slippage with Brent currently trading at just under $75.00 a barrel.