The UK gas market continued to soften on Thursday
The UK gas market continued to soften on Thursday with near futures losses gradually diminishing from a maximum of over 100p on December 23 to an average of 22p yesterday. Although the scale of daily losses has reduced, yesterday marked a fifth consecutive day of decline on the UK gas market which has halved near futures prices over that period. From a peak of 450p on December 21, the January contract has shed 240p to expire at 210.34p on Thursday. The day ahead contract has tumbled from 435p on December 23 to 172p yesterday as the supply-demand situation improved and milder weather prevails.
Baseload futures power tracked GB gas prices lower again
Baseload futures power tracked GB gas prices lower again on Thursday with the improving supply outlook for gas driving the market yesterday. The Q1 22 contract shed a further £18.35/MWh but remains at almost £250/MWh. Carbon price recovery helped support contract further out the curve yesterday. Day ahead was down £34 to a 4-month low of £114.66/MWh on low demand and strong wind generation levels. The week ahead contract shed £82.00 to £167.50/MWh despite forecast lower temperatures and lower wind generation levels for the first week of January.
The February contract for Brent crude gained marginally
The February contract for Brent crude gained marginally in thin liquidity as it expired at just under $80.00 a barrel yesterday. The global benchmark has shown resilience to the spread of coronavirus in recent days and has gained $4.00 over the past 5 sessions. Demand for distillates in the U.S., where refined product saw the second highest weekly demand last week, is defying the surge in coronavirus cases and the reduction in aviation activity. OPEC meet on Tuesday next to consider production levels and indications as of now suggest that they will agree to continue with the monthly production increase of 400,000 barrels.
The gas supply outlook is improving
The new front month contract for February is down by 25.75p and contracts for the summer months are also showing early losses of around 25.00p. With temperatures remaining above normal and wind generation remaining robust, demand on both gas and power systems is well below the seasonal norm. The gas supply outlook is improving with a convoy of LNG deliveries en route to Western European terminals. The new front month (March) contract for Brent is trading at just under $80.00 a barrel and on the carbon market, EUA’s are at just under €80.00 per tonne.