Strengthening on the gas market bolstered by increase in carbon prices

Demand on the UK gas system fell below the seasonal norm yesterday

With rising temperatures and increased wind availability, demand on the UK gas system fell below the seasonal norm yesterday. An early supply surplus of 40MCM was gradually reduced as supply fell back and demand increased over the course of the day. Increased wind availability helped reduce gas demand for power generation but despite the positive supply-demand balance, prompt gas prices strengthened again with day ahead gas up 1.55p and the week ahead contract gaining 1.15p. Futures contracts out to Winter 21 continued to increase with gains averaging over a penny.  

The GB power market gained for a fifth consecutive day

The GB power market gained for a fifth consecutive day with prices for the remaining winter months up by over 10% week-on-week. The ongoing strengthening on the gas market was bolstered by an increase of €1.00 per tonne in carbon prices which saw EU ETS unit prices finish above €29.00 per tonne yesterday. The volatility on the prompt power market eased with the day ahead baseload power contract virtually unchanged. The increase in gas and carbon prices was countered by falling demand and a big increase in wind generation, which averaged 10GW yesterday.

Crude oil prices have risen by 28% over the last 4 weeks

Crude oil prices have risen by 28% over the last 4 weeks on the expectation of increased demand as countries exit lock-down once widespread immunisation takes place. That process has yet to begin however and many major economies are still seeing worsening trends and tighter lockdowns. Assuming demand will pick up some time next year, the market balance will remain dependent on any loosening of production cuts by OPEC and others. The cartel meets today and is expected to extend production cuts, at least for Q1 21. Prices are likely to remain rangebound until that meeting takes place and Brent crude shed 50 cents yesterday to settle at $47.59 a barrel.

 

Demand on the UK gas system has risen above 300MCM this morning

Demand on the UK gas system has risen above 300MCM this morning, but deliveries are running 20MCM long at present. Once again, the prompt market is over-looking the positive supply-demand situation and prices are on the rise. Within day gas has yet to trade but the day ahead contract is up by 1.20p. The new front month contract for January has gained 0.93p and Summer 21 is up by over a penny. The OPEC meeting continues today and a decision is expected on the possible extension of production cuts into the first quarter of the New Year. With Brent crude recovering yesterday’s loss overnight, the market seems optimistic that an extension will be agreed