UK gas market shrugs off risk premium linked to tension in Red Sea

20 December 2023

Gas Market

On Tuesday, UK gas prices opened lower and continued shedding the risk premium linked to the escalating tensions in the Red Sea throughout the session. NBP contracts firstly realigned within the price range witnessed last week and then dipped even lower. The NBP Q1-24 contract opened at 85.90p and proceeded to fall, closing at 81.61p, a 7.76p discount to the previous session. The large price swings observed this week serve as a reminder that market volatility lingers. Market fundamentals remain robust, with aggregated European storage levels were at 88.69% full yesterday. Price movement in the prompt market reflected the curve, as the Day ahead and Within Day ahead contract both closing at 71.50 pence per therm

Power Market

In line with the UK gas market, GB baseload power contracts reversed the majority of the previous sessions gains to close in negative territory.  The front of the curve took the brunt of the downward pressure, with the Q1-24 contract shedding £4.50/MWh to close at £80.75/MWh. Gas for delivery in Summer 24 closed at £75.85/MWh, almost eroding all of the previous sessions gains. Baseload for day ahead delivery closed at £56.18/MWh its lowest level since July 2023. Limited price movement was recorded in European carbon markets on Tuesday, with the benchmark EUA Dec-24 contract closing sideways at €71.93 a tonne. It appeared the market was able to shrug off weakness in the wider energy fuel mix.

Oil Market

Global oil markets extended their gains for the second consecutive session on Tuesday, fuelled by geopolitical tension surrounding the Red Sea. The Brent crude front month opened at $78.06 and pushed higher as the day progressed, eventually closing at $79.23 a barrel. BP’s suspension of oil cargoes through the Red Sea  and redirected tankers via the Cape of Good Hope is supported the upward momentum. However, this alternative route extends sailing time by 10 days, resulting in an extra $1 million in fuel costs for a Far East to Europe round trip. It is important to note that, despite recent attacks on ships by Houthi militants, there has been no impact on oil production. Therefore, the supply and demand dynamics remain unchanged.

Markets this morning

This morning’s UK gas prices are trending higher, with the front month edging 3.85p higher at 84.40 pence while Summer-24 has gained 2.84p and last traded at 84.81 pence. Prompt contracts are yet to trade, however the UK system is balanced this morning.  Two  U.S LNG cargoes are forecast to arrive into the UK today, with an additional five expected before month end. The UK receives LNG from the Middle East, however the majority is from the U.S, therefore the rerouting of LNG cargoes in the Red Sea is expected to have minimal impact on UK supply. Global oil markets have extended their recent gains this morning, with the Brent crude front month last trading at $80.03 a barrel.
Read more carbon market news in our Insights section