UK power demand for 2023, remains 2GW below five year average

22 September 2023

Gas Market

UK gas contracts for near term delivery gained value during yesterday’s session, while longer dated contracts released risk premium. The reoccurring trend of the front month contract taking the brunt of the upward pressure resurfaced, as gas for delivery in October moved 5.20p higher to settle at 100.57p. Buying activity has increased, as we are only one trading week away from the start of the gas winter season. However, unlike previous years, the front summer contract remains at a premium to the winter contract, as Winter-23 closed at 122.83p yesterday, a 1.67p discount to the Summer-24 contract. This divergence highlights the persisting risk profile within the summer contract. During yesterday’s session the Within day contract broke the 100.00p barrier while the Day ahead product ended the session at 99.80p, up 3.22p on the day.

Power Market

Price movement in the GB baseload market saw minimal changes in yesterday’s session, with the majority of contracts showing marginal fluctuations, not exceeding £1.00/MWh. The front month contract edged £0.75/MWh higher to settle at £87.75/MWh while Winter-23 closed at 110.28/MWh, an increase of £0.43/MWh. A noteworthy trend is the ongoing below-average UK power demand in 2023, reflecting the possibility of demand destruction playing a role in the market dynamics. Power demand is currently 2GW below the five-year average.

Oil Market

On Thursday, global oil markets extended their three-day decline, while prices remained within a narrow range, moving only $0.40 over the past five sessions. Brent crude front month closed at $93.30 per barrel, down $0.23 for the day. Market sentiment is divided between concerns about supply disruptions due to production cuts and fears of an economic slowdown driven by potential interest rate hikes, as signalled by the US Federal Reserve. Energy prices have been a key contributor to inflation. The delicate balance between supply factors and macroeconomic developments will be pivotal in determining oil prices’ future direction.

Markets this morning

NBP near delivery contracts have picked up where they left off yesterday, with the front month last trading at 101.40p up 0.83p, while Q4-23 last traded at 113.60p, an increase of 1.07 pence per therm. This morning’s upward momentum in the futures market is also reflected in the prompt, as the Day ahead contract last traded at 101.00p, it is the first time since 23 August the contract has traded in triple digits. The UK gas system is slightly undersupplied this morning, with yesterday’s 8MCM storage injections flipping to 18MCM of withdrawals which should help balance the system. Brent crude last traded at $93.65 a barrel, up $0.35 from yesterday.
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