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Energy Market Report – 10th May 2018

Key Points:

  • The UK gas and electricity seasonal contracts are trading higher, amid strong and bullish fundamentals
  • The Bank of England is expected to decide on changes to interest rates today
  • The US inflation data is due to be published today

UK Electricity Prices:

The UK Electricity Day Ahead and Month Ahead shed about £0.2 /MWh this morning, on the back of falling electricity demand. The National Grid demand system is quite comfortable with nuclear, gas fired power stations and wind farms producing enough energy. Once again, we are observing another day without coal in the power generation mix.

While the spot and prompt contracts are trading lower, the forward curve is up. Rising oil and coal prices provide a bullish sentiment to the UK electricity curve. Coal contracts for delivery in 2019 reached the highest level since January amid rising Asian demand since the beginning of this year. At the same time carbon emission contracts for 2018 delivery reached the highest level ever.

UK Natural Gas Prices:

The prompt gas prices strengthen this morning due to unplanned outages at St Fergus and Kollsness Norwegian processing plants. The Gas demand system is short by about 6 million cubic meters, hence we are observing higher withdrawals from gas storages.

Forward curve contracts witnessed limited activity. While Win-19 and Sum-20 barely changed since yesterday, Win-18 and Sum-19 are trading higher. The seasonal contracts edged up on the back of rising oil prices.

Macroeconomics:

The Bank of England (BoE) is going to decided on whether to increase interest rates today at 12 pm. The current interest rate for the UK is 0.5 %. At the same time UK Industrial production edged up 0.1% month on month in March amid expectations of 0.2% rise.

Elsewhere, all eyes are focus on the U.S inflation data. The actual core U.S inflation is expected to grow up to 2.2%. a jump in inflation would be a signal for the US Federal Reserve Bank to raise interest rates.