Increased trading on carbon markets continues to support prices

12 April 2023

Gas Market

After three days of losses prices consolidated somewhat on Tuesday. The more liquid near term monthly contracts effectively closed flat to last Thursday’s close. Trading was sparse further out, with the initial trades only being transacted late in the afternoon for seasonal contracts from Summer-24 onwards. The lack of activity was reflected in the wide bid offer spreads across much of the session before eventually closing up on the day. Risk of strike action at UK Continental Shelf gas fields has the potential to interrupt domestic supply in the UK and was noted as one of the factors behind the curve’s strength. Coupled with this the longer dated curve contracts were also impacted by the wider energy complex with oil and carbon all gaining value across the session.

Power Market

GB baseload prices tracked the NBP gas price higher with all contracts making gains compared to last Thursday’s close. Mirroring the gas market, the largest gains were seen on further dated contracts, where thin liquidity and large bid offer spreads impacted the closing assessment. The continued upward carbon movement also fed into the curve contracts. Increased trading on carbon markets continues to support prices as the deadline of the 30th of April approaches for ETS participants. With time running out participants are simply paying whatever it takes to meet their compliance needs, creating and supporting the upward momentum on carbon markets.

 Oil Market

The movement in oil prices on Tuesday showed a rise of almost a dollar as the front month Brent contract was assessed at $84.55 a barrel, mainly due to a weaker dollar and anticipation of a possible shift in the Federal Reserve’s policy tightening following a crucial U.S. inflation report later in the week. The weakening of the dollar was instrumental in making dollar-priced oil cheaper for buyers holding other currencies, thereby increasing its appeal. Nevertheless, concerns remained over Chinese demand.  Data from China indicated that consumer inflation in March had risen at its slowest pace since September 2021, which hinted at demand weakness and an uneven economic recovery. The restarting of the last of the four oil refineries in France closed for a month due to strike action is likely to also boost demand for Brent, adding to the upward momentum.

Markets this morning

Trading remains muted this morning, with trading limited to the front three months and front quarter. Having initially opened higher gas prices have retreated lower and are just below yesterday’s close, remaining essentially flat. Prompt markets are supported by low temperatures and an interruption to some Norwegian supplies. Brent crude has weakened slightly on the back of data from the American Petroleum Institute (API) showing inventories had increased for the week ended the 7th of April, versus an expectation in the market of a decline in stocks. Carbon too has seen a slight easing this morning as early trading has the December-23 contract pegged at a 50-cent discount to last night’s closing assessment.  
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