Small Business Market Update
Tuesday 10 July 2018
UK gas prices continued to climb throughout the week, as the heatwave seemingly has no end. The hot weather may seem pleasant for hosting BBQ’s to celebrate football coming home, however it is significantly increasing gas burn due to cooling demand.
On average the UK has seen forecast demand of 180mcm, with 60mcm of this demand needed to burn to generate electricity to meet cooling demand. On top of this, prices have found further support as there has been a reduced wind generation and expensive Coal prices mean power generators are relying more on gas. This has lifted the front end of the curve and pushed prices up in the coming weeks and front months.
One bearish note, on the front of the curve relates to the storage levels across Europe. During 13th – 28th June, the IUK interconnector pipeline was down for maintenance meaning the UK was unable to export gas to the continent. Storage levels climbed from 13% to 40%, which in reality should have reduced the Winter-18 price.
Despite Winter storage levels increasing, the far curve has strengthened as Coal prices have soared to 5 year highs reaching $93.20 as global supply and demand fundamentals weigh on the price. River levels in the Rhine remain low due to the European heatwave making it difficult to transport coal on barges through the industrial zone and wetter conditions in Indonesia have made it more difficult to export the commodity. Global demand has increased giving further support to the curve.
Oil prices have risen this week, also reaching 4-year highs up at $78.89 as supply fears plague the global market. This has been threatened further as Norwegian Oil workers go on strike on Tuesday afternoon whilst tensions remain in place in the Middle East. The impact of US sanctions on Iran on their Nuclear stance has firmed prices over the recent weeks.
Carbon prices have once again climbed above €16 to reach €16.20 to ensure that the wider fuel complex remains priced strongly. All of the above commodities in Coal, Oil and Carbon prices directly influence the UK gas market and lift prices on the far curve.
The UK has seen a weaker GBP against the Euro with the currency being the worst performer so far this week. Resignations by Boris Johnson and David Davis have sparked further fears of uncertainty surrounding Brexit. A weaker sterling makes it more profitable for traders backed in Euro to buy into the UK market, generally increasing prices due to buying demand.
In the short term, the UK has seen reduced flows from Norway down to 35mcm with low LNG volumes into the UK market. Temperatures are expected to cool down slightly until the weekend, but breezier conditions are expected to arrive in the next week, which should help to reduce the load on gas burn for electricity generation.
What specifically affected prices in the past week?
Bullish factors (upward pressure)
- Oil Prices reach 4-year highs
- Coal Prices strengthen to 5-year highs
- Carbon Emissions Climb above €16
- GBP Gas Demand
- GBP Weakness
- Hot weather continues
Bearish factors (downward pressure)