Tight supplies continue to put pressure on oil prices

20 July 2022

The UK gas system ran short for much of the day

 The UK gas system ran short for much of the day yesterday with an outage and the FLAGS field reducing some Norwegian flows in the UK.  The outage is expected to be resolved quickly but news that Gazprom had issued letter to continental European uses about their force majeure conditions did little to dampen negative sentiment.  The market is on edge as a result of the ongoing Nord Stream 1 maintenance any issue however small is amplified.  The market was higher from the outset with pressure on the front two months. the front month August contract topped 232.99p at one stage but finished off its high at 216.53p, up by 22.85p.  Longer dated contracts also trader higher but risk premium fell out as the market neared settlement.  

 Spark spreads for the forthcoming Winter remain elevated

The Winter 2022 baseload power contract retreated from its record high point and extended its discount to continental prices.  Spark spreads for the forthcoming Winter remain elevated but gave up some premium during the session yesterday.  Winter 2022 baseload closed at £449.50/MWh, down by £3.50 from the previous session. Wind generation levels are expected to outturn at 4.9GW today a reduction of 0.5GW day on day.  Day ahead baseload power is priced at £242.50/MWh and outward flows of 2GW continue across the interconnectors.  

 Brent crude ended the day up by just over a dollar

Brent crude ended the day up by just over a dollar after a volatile session on Tuesday. For the front month of September delivery Brent settled $1.08 a barrel higher yesterday, closing at $107.35 with West Texas Intermediate up $1.62 to finish at $104.22 a barrel. The recent slide in the dollar has made oil a little bit more affordable for holders of other currencies, but tight supplies continue to put pressure on prices. With expectation that US inventories have increased over the last week, some easing of the supply concerns is also to be expected to be felt soon. On the downside any further increase in U.S. rates could lead to a further strengthening of the dollar.  

 Negative sentiment pervades the market

The UK gas market, along with most other European gas hubs, remains on edge as we enter the penultimate day of maintenance on the Nord Stream 1 pipeline.  Negative sentiment pervades the market with concerns regarding future supply of Russian gas the main reason. Once again the front of the UK NBP gas curve has come under pressure with prices for both August and September tracking higher.  The Winter 2022 contract has yet to trade but there are few bids coming through as of yet. UK gas demand for today has increased to 228MCM and the system is currently running short by 17MCM at the moment.
Read more carbon market news in our Insights section