On Monday, the UK gas market witnessed the unwinding of risk premium

05 September 2023

Gas Market

On Monday, the UK gas market witnessed the unwinding of risk premium, primarily impacting near term contracts, which contracts further along the curve appeared more resilient to the downward pressure. The front month contract Oct-23 lost 5.51p to settle at 81.25 pence per therm while Winter-23 shed 3.82p to end the day at 120.73p, an 18 session low. The decline in prices observed yesterday occurred despite the ongoing negotiations between Australian LNG facilities and unions regarding potential disruptions due to industrial action. However, the precise extent of the impact on volumes remains uncertain. The prompt market demonstrated a correlation with the futures market, as both the Day Ahead and Within Day contracts experienced declines. The Day Ahead contract has averaged at 81.69p in September, aligning closely with the average price observed in the preceding month.  

Power Market

Clear downward momentum returned to the GB baseload power market during Monday’s session, with losses recorded across the curve. The contracts closer to delivery bore the brunt of this downward pressure, whereas risk premiums further along the curve displayed greater resilience. The front season Winter-23 dipped £4.63/MWh lower to settle at £114.70/MWh, just shy of a 20-day low. The European benchmark carbon contract Dec-23, dipped below the €85.00 threshold, ultimately settling at €84.08 per tonne. This decline can be attributed to the resumption of normal auction volumes.  

Oil Market

Oil prices rallied during Monday’s session, reaching a peak of $89.02 per barrel before eventually stabilizing at $89.00, up $2.45 on the day. This upward momentum was primarily driven by ongoing supply concerns, with Saudi Arabia expected to confirm an extension of their supply cuts for the fourth consecutive month, while Russia has already committed to cuts. Furthermore, additional pressure on oil prices came from the latest Chinese manufacturing data, which surprisingly indicated an increase in manufacturing activity. This unexpected positive development reflects optimism regarding the successful implementation of a series of economic support measures by the Chinese government.  

Markets this morning

Limited price movement recorded in the UK gas market this morning, with the front month last trading at 81.47p, just 0.22p above yesterday’s close while Winter-23 has lost loss than 1.00p, last trading at 119.75p. The prevailing calmness in the morning market contrasts with the ongoing escalation of industrial action at Australian LNG facilities with a two week walkout plan now at play. Closer to home, the UK gas market is balanced this morning with demand forecast below seasonal norm once again at 123MCM. Additionally, Norwegian exports to Europe are showing signs of recovery after encountering planned and unplanned outages over the weekend.    
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