Small Business Energy Market Update Tues 11 June 19
What has happened to Gas prices this week?
Gas prices in the UK came under downward pressure during the last week of May, with gas prices on a 12-month contract falling to its lowest price of ~1.6972p/KWh (commodity only). Following this time, the market held flat taking no direction, before a sharp increase on Friday 7th June ensuring prices closed at a similar level to a fortnight ago.
At the end of May, the UK basked in warmer weather, with temperatures above seasonal norm helping to reduce gas demand. A high renewable outlook also provided some pressure in reducing prices at the front of the curve.
The brief warm spell that the UK encountered at the end of May also coincided with the return to near full capacity of Norwegian gas flows into the UK. This had been restricted due to 3 separate periods of maintenance at Norwegian facilities. As Norwegian gas flow strengthened into the UK, whilst UK gas demand fell prices moved down due to healthy supply outlook.
The front of the UK market saw significant losses during this period, with the Day-Ahead contract trading below 25p/therm on 2nd June, its lowest mark since June 2017. This was not to last as a number of gains in the wider energy complex boosted the market.
Gas prices, once extremely closely linked to Oil prices have seemed to take a move away from key drivers impacting the market and significant losses in the Oil market were not enough to dampen contracts further. The US announced potential tariffs on Mexico and Australia (two of its largest trade partners) which increased the risk of global slowdown and lower demand for Oil, whilst the trade war between US and China rumbles on. The OPEC carter have a meeting at the end of June to try and agree on further production cuts, with current curbs set to expire at the end of this month. All fundamentals helped to drop Oil prices by over $10 per barrel.
Gas prices increased significantly on Friday 7th June, buoyed by a shift in weather forecasts, with the UK to remain below seasonal average for the majority pf the first 2 weeks in June. Increased gas demand for heating and lower wind output lifted the front and a bullish move in the wider energy complex lifted the curve.
The Carbon market lifted roughly 2% on Monday, trading back above €25/tCO2 for the first time since the end of May, with Coal prices climbing back over $65 as Coal and Gas continue to compete in the power generation mix. More expensive coal leads to gas becoming more profitable to generate power, however the increased demand leads to gains on the gas market.
The far curve has also been supported by weakness in GBP, with Theresa May stepping down on Friday 7th June, with as many as 10 candidates in the mix to succeed her as Prime Minister. The uncertainty on all candidates Brexit views, with the 4-month timescale before the UK is set to leave the EU increased uncertainty on the terms of any deal. GBP has suffered against the Euro over recent days, making the back of the UK gas market cheaper to traders backed by the Euro.
Temperatures are expected to pick up as we move through the week, with more LNG cargoes set to arrive into the country and this could lead to a weaker prompt, however volatility is likely for the next few weeks as the preamble to OPEC, with Energy ministers jostling for air time to put forward views in relation to the market.
Small Business Energy Market Update Tues 11 June 19 – Outlook
What specifically affected prices in the past week?
Bullish factors (upward pressure)
- Coal Prices strengthen
- Carbon Emissions Climb
- Increased Gas demand on cooler weather in first weeks of June
- GBP Weakness (Brexit Uncertainty)
Bearish factors (downward pressure)
- Oil Prices go Down
- Well Supplied System
- Warmer Weather delivered in May
Small Business Energy Market Update Tues 11 June 19 brought to you by British Utilities