Carbon and oil have reversed gains and are both trading lower

01 March 2023

Gas Market

UK gas prices settled slightly lower yesterday compared to the previous day. However, the overall calmness in the market persisted with prices showing little fluctuation. The new front month contract April climbed to 120.35p before falling back to settle at 115.54p, down 1.30p. An influx of LNG cargoes continues to add pressure to near curve contract, with eleven cargoes expected to arrive into UK ports by the end of next week, four more than the same period in 2022. The EU’s political intervention towards gas storage levels last year has been successful in preventing volatility from creeping back into the market. Aggregated European stock levels are currently 34 percentage points higher year on year and 24 percentage points above the five-year average. Although these near therm fundamentals appear healthy, conditions can change rapidly.

Power Market

GB baseload power futures edged lower for the second consecutive session yesterday. The market continues to take direction from declining gas prices while risk premium in the spark spread market has extended its erosion. The front month contract March settled at £126.50/MWh during its last day of trading while the bellwether contract, Summer 23 lost £2.75/MWh to settle at £128.75/MWh. EUA carbon prices traded in their tightest range for three months yesterday, with the Dec 23 settling just shy of the €100 a tonne mark. The market continues to receive support from robust trading activity.

Oil Market

Brent crude front month peaked at $84.12 a barrel yesterday but failed to hang onto the gains and ended the session at $83.68 a barrel, up/down X on the day. Overhanging uncertainty pushed the benchmark front month contract marginally lower by $0.40 a barrel month on month, trading at an average of $83.51 in February. Tuesday’s small uptick in prices took direction from China once again, as hopes of a strong economic emerge from key data which is set to be published this week. Given China’s status as the world’s second-largest oil consumer after the US, any change in its demand for oil can significantly impact the global oil market and prices. Yesterday’s upward momentum was curtailed by the threat of addition US interest rate increases.

Markets this morning

The weakness displayed by the UK gas market yesterday has come to an end this morning. Despite NBP gas contracts opening higher, prices are showing no signs of volatility. The front month contract April last traded at 118.20p up 2.66 pence per therm from yesterday while Summer 23 is trading at 120.50p, representing a 36.50p decrease compared to the same day last month. Prompt prices have also opened high, taking direction from a modestly undersupplied UK gas system this morning. In the wider energy complex, carbon and oil have reversed gains and are both trading lower compared to the previous session.  
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