Weak gas prices weighed on Carbon EUAs

07 June 2023

Gas Market

Gas prices fell on Tuesday bucking Monday’s upward movement illustrating the volatility that still remains at European gas hubs. Strong upward movement was reversed yesterday with contracts trading strongly in early trading before a collapse across late morning and into the afternoon. The front month, July, retreated below 60 pence per therm, having lost 8.07p. The losses were not only limited to the near curve, with winter-23 onwards also falling session on session.  The main driver behind the price increases was the expected continuation of mild weather across Europe and fall in gas demand, while LNG delivered remain healthy for the coming weeks, with data indicating at least 3 cargos berthing in the UK and seven at Belgian facilities.  

Power Market

Tracking European gas hubs GB baseload prices shed value across the session on Tuesday. Also adding to the malaise on the power markets was the continued fall on carbon markets. The remainder of 2023 and 2024 took the brunt of the losses with prices down by over £5/MWh on each of the contracts out as far as Q3-24. Day ahead baseload prices were up due to an expected fall in wind generation on the system. Carbon fell on Tuesday amid weak auction results that triggered a sell off and some profit taking. The volume of credits available for future auctions is expected to be healthy in the near term which coupled with weak gas prices weighed on Carbon EUAs.  

Oil Market

Oil prices experienced a slight decline of approximately 1% on Tuesday, primarily driven by concerns over sluggish global economic growth and its potential impact on energy demand. Despite Saudi Arabia’s commitment to further reduce output, these worries overshadowed any positive effect. The price of Brent futures dropped by 42 cents, settling at $76.29 a barrel. Meanwhile, focus shifted towards the U.S. Federal Reserve’s upcoming decision on whether to raise or maintain interest rates in June. As anticipation built, the U.S. dollar strengthened, which, in turn, has the potential to dampen oil demand as it increases the cost of fuel for holders of other currencies. Adding to the subdued market sentiment, unexpected data revealed a decline in German industrial orders for April, further contributing to the prevailing cautious outlook.  

Markets this morning

The UK gas market has opened weaker this morning, as it attempts to unravel Monday’s gains. The front month contract last traded at 58.25p down 0.9 pence per therm while Winter 23 hasn’t traded yet. The UK gas system is undersupplied once again, with demand forecast at 147MCM. Despite the short system prompt contracts are also in negative territory, with the Day ahead contract last trading at 67.25 pence per therm. Prices in the global oil markets are flat on the day, with the front month last trading $0.03 lower at $75.27 a barrel.  
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