Energy Market Report 16th – 20th July, 2018
July 16, 2018
Weekly Energy Market Report
Week 29: 16th – 20th July 2018
Ignite bring you the latest energy news across the UK and Europe. Let’s take a look at the latest news and numbers that affect the energy market at home and abroad.
The UK electricity seasonal contracts were trading lower last week. The UK electricity curve was in backwardation where long-term contracts were significantly cheaper than the front contracts such as Win-18. The UK gas curve also recorded the bearish momentum with Win-18 loosing over 3% week on week.
The UK Energy Market Last Week
- Despite abnormally high temperatures in the UK, both the gas and electricity near curve were trading lower last week.
- UK gas longer-dated contracts reflected a direction of falling crude oil prices and weighed on the electricity curve.
- The global economy is facing new challenges driven by tension between the biggest trading markets: The U.S, China and the European Union.
To keep up to date with the UK energy market every week visit https://www.igniteenergy.co.uk/updates/.
UK Electricity Prices
UK electricity prices for near delivery moved down by 2.5% on average. Month ahead was down by 1.8% and settled at £56.00/MWh, while day ahead went down by 3.3% and consolidated around £55.25/MWh. Despite hot weather, the UK electricity curve was trading lower amid a healthy generation supported by coal and oil. Renewable generation was limited by falling wind generation output.
The seasonal contracts were falling in line with the prompt market. The UK Electricity Win-18 contract closed the week at £61.28/MWh, losing 2.1% week on week. Longer dated contracts were also down. Sum-19 closed on Friday at £51.03/MWh (1.0% down), Win-19 was settled at £56.87/MWh (1% down). The front winter contract recorded the biggest losses, whereas the far curve declined moderately. The overall curve direction remains in ‘backwardation’, but it is not as steep as it was a week ago.
UK Natural Gas Prices
The day ahead gas contract moved down by 2.7% and settled at 58.2p/th on Friday, whilst month ahead was down by 2.0% and closed at 58p/th. The front curve fundamentals were quite stable last week. Expectations of two LNG cargos arriving to the UK eased off a pressure from near delivery contracts. The UK gas system is expecting around 413,000 cubic meters of gas this week. Norwegian Gas Operator announced gas system maintenance in August, hence we would expect the gas prices for day ahead to reflect a shortage of supply in the next 2-4 weeks.
Longer dated contracts were also trading lower. Win-18 settled at 63.75p/th (down by 3.0%) while Sum-19 was at 51.55p/th (1.7% down). The downward movement of the far curve was driven by falling oil prices and the global “trade war” between the world’s biggest economies (China and the US). Brent Crude dropped almost 7% on Wednesday, shortly after the US president announced further embargos on the import of Chinese goods. In addition to this, a return of oil production in Libya contributed to a global surplus of the worldwide oil benchmark.
Geopolitics and global supply of oil still play the major roles in current economic affairs. The US will not waive sanctions against European companies that are active in Iran. Washington wants to maximise pressure on Tehran, so requests for exemptions from sanctions on European business in Iran were rejected.
Iranian oil production was weakening over the last few weeks, however the Islamic Republic has still got strategic customers such as China, India, Japan and South Korean which consume about 65% of the total output of Iranian oil. If China continues a business relationship with Iran, the US sanctions on Iran will have little effect. This scenario is very likely in the view of the current China versus US trade war.
What To Watch This Week
- Recovery in oil and coal prices may bring a bullish momentum to the UK gas curve.
- The President of the US is going to meet with Putin this week in Helsinki.
- The UK monthly unemployment rate is going to be published on Tuesday.
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