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Energy Market Report – 9th May 2018

Key Points:

  • The UK gas and electricity prices are trading higher amidst a set of bullish fundamentals
  • Oil Prices shoot up higher after president Trump pulls out from the nuclear deal with Iran
  • The dollar strengthens, reaching the new high since December-17

UK Electricity Prices:

The UK power generation mix is largely produced from natural gas (33%) nuclear (21%) and wind (12%) today. Day Ahead and Month Ahead contracts are trading higher 1.36% and 1.99% respectively amidst the rising cost of gas.

Further out the curve, seasonal contracts are also up, on the back of bullish sentiment spreading across global markets after president Trump decided to pull out of the nuclear agreement with Iran. European coal contracts and carbon emission allowances are trading higher today. Coal gained about 1.18%, whereas carbon emissions are up by 3.4%, reaching a new high.

UK Natural Gas Prices:

UK Natural Gas prices edged higher this morning, with Day Ahead and Month Ahead contracts trading higher, 2.83% and 2.64% up respectively. The Demand system is well balanced however, the current flow of gas is below the forecast. This is a bullish signal which is reflected in the contracts for the early delivery. The current level of supply is about 40 mcm below average seasonal norms.

In addition, the bullish momentum was taken from rising oil prices. Yesterday, the president of the U.S opted out from the nuclear deal with Iran established in 2015. The decision is likely to be supported by an introduction of new sanctions on Iran. As a matter of fact, oil prices reacted quite nervously with Brent Crude reaching almost $77/bbl. The last time oil prices were trading at this level was in Q4 2014.

Macroeconomics:

The financial markets witnessed a strengthening in the dollar and the U.S treasury yields after the U.S. decided to withdraw from the nuclear deal with Iran. The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, hit a high of 93.20, the most since December 19 and was last at 93.15