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Energy Market Update – 24th May 2018

Key Points:

  • UK natural gas prices rallied amid outages at Kollsnes and Troll in Norway.
  • The Pound fell to the lowest level since December 2017 yesterday.

UK Electricity Prices:

UK electricity prices for near term delivery are trading higher, amid low wind and solar generation and heavy reliance on natural gas (gas for power consumption is estimated about 50 mcm of gas today). Power production from coal is reduced to zero today. Day ahead is currently trading between £56.20-£56.75/MWh, whereas the month ahead contract is in a rangebound of £56.25-56.37/MWh.

Forward season contracts witnessed limited activity this morning. The front season, Win-18 is up by 1.04% and it is currently trading between £62.09-£63.15/MWh, at the same time, the Sum-19 contract is about 51.55/MWh. Carbon emission contracts for delivery in Dec-19 are also up by 1.8%, amid rising costs of European coal.

UK Natural Gas Prices:

UK nat gas prices are trading higher across the curve this morning. Month ahead contract is currently trading at 58.30p/th, up 1.27% on yesterday’s close. An unexpected outage at the Kollsnes and Troll field in Norway reduced the supply to the UK by approximately 60 mcm of gas. At the same time, the gas demand is expected to be lower today and tomorrow, hence the shortage of supply doesn’t seem to have any material impact on the gas demand system in the UK. As a matter of fact, the demand system is about 10 mcm long.

Further out the curve gas prices edged higher this morning, despite oil markets trading lower today. Win-18 is currently trading in the range of 62.90-6315p/th, while sum-19 is between 51.55-51.90p/th.

Crude oil price slipped from the level $80/bbl to just over $79/bbl. The organisation of Petroleum Exporting Countries (OPEC) is debating about an increase in oil output amid a number of concerns from Washington over a rally in oil prices.

Meanwhile, the EIA report produced yesterday, reported commercial U.S. crude inventories higher by 5.8 million barrels in the week to May 18.

Macroeconomics:

The British currency is currently down by around 19% against the dollar and by 8% against the euro, according to Bloomberg. The Pound slipped to the level seen in December 17 yesterday. Today, we are seeing a small rebound, after a report showed U.K. retail sales rose more than expected in April.

The weak British currency makes imports of goods more expensive. Taking into the account that the country heavily relies on imports of nat gas from other countries such as Norway and Qatar, we envisage that the falling pound will push prices of natural gas even higher.