Clearly the improving supply position is weighing on the market
The decline in the gas market has now continued for the third day in a row with prices opening weaker and then extending these losses of the course of the session. At no stage did the market go into positive territory with losses of 8.00p to 10.00p building up before a sell off near the close saw monthly contracts for Winter delivery fall by nearly 15.00p per therm. Summer pricing went in the same direction with both Q2 & Q3 2022 declining by 13.91p respectively. Clearly the improving supply position is weighing on the market while the ongoing talks between the US and Russia over Ukraine improves the prospect for more Russian gas supplies to Western Europe.
The front month February contract shed a whopping £26.50
The GB baseload day ahead contract eased on Tuesday despite wind generation production being low for the day. The average daily production for wind is coming in at 5.7GW for this week which is still below the seasonal norm. Baseload for today fell by £19.58 to settle at £205.00/MWh. On the baseload curve future contracts were pressured lower buy a combination of cheaper gas and declining spark spreads. The front month February contract shed a whopping £26.50 to close at £209.00/MWh. EUA carbon costs added €2.00 early on but failed to hold onto these gains as the spot settled at €81.68, up by 42 cents.
The market seems to be bullish at the moment
Crude oil prices received a boost on Tuesday and recovered all of the premium that was shed in the previous two sessions. While some of the support from Libyan supply disruption and unrest in Kazakhstan may have waned, there are still a number of factors driving prices higher. While OPEC did indicate that a lift in production quotas, these additional barrels have yet to materialise. In addition, it would appear that the progress of the Omicron variant of Coronavirus has had little impact on the demand outlook. The market seems to be bullish at the moment but any increase in U.S. interest rates and strengthening of the dollar could reverse this trend.
Gas prices have firmed this morning
UK forecast gas demand has increased day on day to 335MCM and is reflecting the forecast for cooler weather for the next number of days. The system is running with a deficit of 7MCM although this figure has narrowed in the last hour or so as medium range storage ramps up. LNG send out is running at 115MCM with more deliveries in the offing. Gas prices have firmed this morning although they are currently trading off the high point set earlier. The front month February contract is trading at 193.50p, up by 3.27p while Summer 2022 is priced at 177.00p, up by 2.81p. Crude oil markets have steadied and are trading flat to last night’s close.