Small Business Energy Market Update
Tuesday 11 September 2018
What has happened to Gas prices this week?
UK gas prices continued to climb for the previous week, with a 12-month gas contract lifting by 5p/therm for the week (0.17p/KWh) as the UK market continued to lift.
An increase in wider fuels prices and some supply issues fuelled the increases with the market seeming to throw a perfect storm.
Carbon and EUA prices lifted considerably on Friday 7th September and over the weekend, pulling the far gas curve up alongside it. EUA’s were priced at €21.47 on Friday lunchtime, before trading above €25.17 on Monday. To put into context, the EUA credits were being sold for ~€8 at the start of this year. The biggest driver is a change in a new market balancing system from January, which is seemingly going to restrict the number of credits available. Simply, the demand remains the same but with a threat of reduced credits.
Coal prices lifted up from $92 at the end of last week, climbing to over $95 this week. Coal transportation had struggled through the summer on low water levels in the River Rhine, meaning barges could not deliver. This has since passed and the continued rising gas prices are making coal more profitable. The profit margin for burning coal to generate power has nearly doubled over the week, making it more attractive to buy Coal. This buying demand has lifted the price of the commodity.
Oil prices have traded slightly upwards for the week but remain relatively flat at $77/bbl. A report published showed that the number of Oil Rigs decreased and the three largest customers of Iranian Oil are looking elsewhere to meet demand. This is ahead of US sanctions on Iran, set to take force on November 4th. The reduced production and export from Iran is seemingly causing a bigger drop in Oil production than first estimated.
European gas storage levels are at the lowest for this time of year for 5 years, following high demand over the summer for cooling and coming after the Beast from the East, which depleted storage levels. LNG is more profitable to be sent to Asia and therefore it is difficult for Europe to fill storage. To do this, suppliers are paying premium to ensure safety for the winter.
The UK has seen some respite in terms of GBP over the last couple of days with positive GDP figures and average earnings data released. The Pound was boosted further as reports emerged on Monday suggesting that the chief EU Brexit negotiator has admitted we could be 6-8 weeks away from a Brexit deal. This took some uncertainty out of the market. A stronger pound discourages buying from European traders as it becomes more expensive relatively, and therefore a reduced demand for buying helped to offset any further gains.
What specifically affected prices in the past week?
Bullish factors (upward pressure)
- Oil Prices Crept Up
- Coal Prices strengthened
- Carbon Emissions Soared upwards
- European Gas Maintenance Continues
- European Storage Levels
Bearish factors (downward pressure)
- Stronger GBP
- Lower Gas Demand