Small Business Energy Market Update Wed 27 March 19
What has happened to Gas prices this week?
UK Gas prices continue to trend downwards, with the market remaining generally bearish with volatile days correcting the market on occasion.
The UK remains well supplied with an abundance of LNG arriving to UK shores, helping offset demand increases and points towards a bearish summer as UK storage levels remain as high as 37% as we approach the end of the winter withdrawal season.
The front of the UK gas curve fell considerably between Thursday 14th and Sunday 17th March as high winds and storm conditions battered parts of the UK. With this, the demand for gas burn was significantly reduced and arrived days after the UK had sat comfortably above seasonal normal weather temperatures. Due to a mild winter, storage has been called upon much less than previous winters and has been helped by the increased LNG schedule in the UK. It points towards the UK battling high supply levels through the summer when gas is usually shipped into storage.
Temperatures have remained at or above seasonal normal for the previous 2 weeks, helping to reduce gas demand as we approach the first summer months. The weather models have consistently predicted milder temperatures, which helps, push bearish sentiment onto the gas market. At present, latest models have re-forecast assumptions that the first week in April is set to be 3°C below seasonal average and market has reacted to this. April contract has priced up slightly a number of days before delivery.
Further out, Carbon EUA prices have continued to remain strong and are priced above €21.50, with recent gains in Coal also helping to lift the gas curve. Any increases in Coal and Carbon will increase the gas price as generators turn to gas for generation methods as it becomes more profitable and emits less carbon than coal, thus requiring less emission credits which are pricing upwards.
Brexit continues to rumble on, and with the MP’s voting against a motion to leave the EU without a deal, the GBP strengthened against the Euro. The market would react negatively with the uncertainty that a no deal Brexit would bring and therefore this result came as a relief to prices. The extension to Article 50 provided some short support as the extension was not deemed as long enough by market players but GBP remains €0.02 stronger than at the start of the year.
Oil prices lifted to the highest in 5 months on Monday, as a significant fall in US stocks last week and the cancellation of an OPEC meeting in April supported prices. The OPEC meeting for April was in place to discuss further production cuts, which currently end in June and with the meeting cancelled until June it is likely that cuts will continue longer than expected. On Tuesday, prices eased as the Federal Reserve in the US spoke cautiously hinting at a threat to a US recession as 10 year yields dropped below 3-month rates for the first time since 2007. This is likely to reduce global demand and could outweigh any production cuts.
What specifically affected prices in the past week?
Bullish factors (upward pressure)
- Oil Prices Up
- Coal Prices strengthen
- Carbon Emissions Climb
- European Gas Maintenance – Oseberg
Bearish factors (downward pressure)
- Warmer Weather
- Lower Gas Demand
- Higher Renewable Generation
- Strong UK Supply
- Good storage availability
Small Business Energy Market Update Wed 27 March 19 brought to you by British Utilities