UK gas prompt prices displayed significant weakness
UK gas prompt prices displayed significant weakness during the market yesterday with spot and day ahead prices declining further to 20.00p and 38.05p, down by 23.30p and 2.00p, respectively. Lack of export capacity and a reduction gas demand has caused a huge amount of gas to become trapped within the UK. In addition, wind generation levels and solar PV output are coming higher than expected and this too is suppressing gas demand. The gas futures market was set fair be a mirror of the previous day but a late surge in prices saw all contracts settle higher. News emerged from Ukraine that the state-owned gas grid operator had declared force majeure at an entry point that is under Russian control and stopped the transit of gas destined for Western Europe.
UK baseload power contract traded lower for much of the session
UK baseload power contract traded lower for much of the session yesterday, but prices moved higher in the last hour as gas led gains fed into contracts. Contracts out to Winter 2022 were most impacted as prices rose by £4.80/MWh on average. An interruption in flow of Russian gas through Ukraine provided the support. Renewable generation remains above the seasonal norm with both wind and solar PV making strong contributions. With plentiful supply and cheaper gas the day ahead market for power weakened further and closed at £70.00/MWh.
The Brent crude market moved downwards
The Brent crude market moved downwards for the second consecutive session on Tuesday. Despite the front month reaching a high of $106.96 a barrel in the early hours of trading the contract eventually shed these gains to close down by $2.83 at $103.11 per barrel. The strength of US dollar continued to put downward pressure on Brent prices, as it traded at a near 20 year high at €1.0542 yesterday. The market also continues to have a keen eye on the economic situation in China where lockdowns in several major cities are set to be tightened further despite WHO suggesting that the Chinese zero covid policy was not sustainable.
Gas markets have opened slightly lower this morning
Gas markets have opened slightly lower this morning following the late surge in prices yesterday. In early trading the front month June contract is priced at 135.00p, down by 10.77p from last night’s close. Winter 2022 has yet to trade but bid/offer spreads for this contract would suggest that prices will be down by at least 6.00p. It would appear that the market is re-evaluating the impact of the Ukrainian gas flow interruption and is less concerned at the news. Forecast gas demand for today has increased day on day by 20MCM but supplies are matching this level and prompt prices remain low although they have firmed slightly.