Weakness in the UK gas market is apparent this morning

25 May 2023

Gas Market

Despite starting on a positive note yesterday, the majority of UK gas contracts lost their upward momentum as the day progressed and closed in negative territory. Continuing the trend from the recent sessions, the near delivery contracts took the brunt of the downward pressure, while price movements along the far curve remained relatively insignificant. The premium between the Day ahead contract and the front month remains narrow, with June settling at 64.55p, a 0.59p discount compared to the Day ahead price of 65.14p, whereas at the beginning of May, there was a 5.15p premium. The TTF and NBP Day ahead spread narrowed to 7.00p yesterday. With a heavy drop in Norwegian supply to the UK the system remained tight and storage injections switching to withdrawals.

Power Market

For the third consecutive session GB baseload power futures closed lower on Wednesday. The bellwether contract Winter 23 took the biggest hit, down £4.35 on the day at £132.40/MWh while the front month June lost £3.32/MWh to close at £75.25/MWh. Weakness in the wider fuel mix supported the downward pressure with losses recorded in the UK gas market alongside carbon prices. Weakness in the baseload prompt market was also evident yesterday, baseload for day ahead delivery settled at £75.46/MWh. The contract has averaged at £83.99/MWh so far this month, £18.77 below the previously monthly average.

 Oil Market

Global oil prices opened higher during yesterday’s session, and maintained the upward push throughout the day. The increase in prices was a direct impact of a larger than forecasted drawdown in US crude inventories coupled with a warning from Saudi Arabia that it may adjust OPEC+ production cuts as their Energy Minister told short sellers to “watch out”. The upcoming OPEC+ meeting, scheduled for June 4 in Vienna, holds great significance as it will determine whether there will be further production cuts. The primary objective of OPEC+ is to stabilize the global oil supply and regulate its price. Consequently, any adjustments made by the cartel regarding oil output can have a profound impact on the price of commodities. Brent crude front month contract gained $1.52 to settle $78.36 a barrel.

Markets this morning

Weakness in the UK gas market is apparent this morning, with Winter 23 last trading at 117.00p, down 7.76p from yesterday and a pre-energy crises price level. The front month June is edging closer to the 60.00p barrier, last trading at 62.00p per therm. The UK gas system has opened 16MCM undersupplied this morning, however prompt prices have shrugged off the deficit and are trading lower as storage withdrawal attempt to counterbalance the absence of Norwegian flows on the back of maintenance. EUA carbon market has also opened in negative territory, the Dec 23 contract last traded at €83.54 a tonne.  
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