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Energy Market Report – 15th May 2018

Key Points:

  • UK Electricity and Gas prices continue rising, amidst bullish sentiment from oil markets.
  • ONS announced that wages rose at an annual rate of 2.9%, faster than inflation for the first time in more than a year.

UK Electricity Prices:

The UK Electricity prices mirrored the trend of natural gas prices. Day ahead prices moved up almost 1.8% this morning and are currently trading at £53.35/MWh. The power generation mix is mainly composed from Gas (40%) and nuclear (20%). Wind generation is as low as 5%, whereas coal supplies only about 2% of the wider generation mix.

Further out the curve, Win-18 prices have opened higher this morning. Win-18 is trading at £60.25/MWh amid the support coming from natural gas winter contracts. Further support came from European coal contracts trading at $90/tonne and carbon emissions trading almost 2% higher than yesterday.

Electricity and gas prices are reaching levels from 2013. However, the current trend in UK commodities indicate that we are likely going to see record high electricity prices this year.

UK Natural Gas Prices:

Despite comfortable fundamentals, the UK nat gas prices turned firmer this morning. Brent Crude rallied overnight reaching almost $79/bbl, on the back of a recent escalation of conflict in the Middle East. In addition, OPEC said the glut on global crude supplies has been nearly eliminated.  Saudi Arabia indicated they will continue the oil production curb, despite oil prices reaching a 3.5 year high. The bullish oil momentum is likely to be maintain this week, as the American Petroleum Institute (API) is slated for Tuesday after data last week showed a fall in weekly U.S. crude stockpiles for the first time in three weeks. As a result, Win-18 gas contracts are currently trading at 63.10 p/th, up 0.43 p/th (0.69%), whereas Sum-19 is at 48.10 p/th, up 0.85 p/th (1.77%).

Macroeconomics:

The dollar edged higher against a basket of six currencies. The Pound has also moved up this morning and is trading around 1.3556.

According to the Office of National Statists (ONS), wages rose at an annual rate of 2.9% in the three months to March, faster than inflation for the first time in more than a year.