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Energy Market Update – 30th May 2018

Key Points:

  • Weak wind generation pushes Gas and Electricity day ahead prices by more than 3%.
  • UK Electricity and Gas prices continue to rally amid rising Oil and Coal prices.
  • Italian pollical turmoil eased off, however a risk of potential crisis of the 4th largest European economy is still material.
  • The U.S threatens China with new restrictions on imports of Chinese goods worth $50bil.

UK Electricity Prices:

UK Electricity prices, for short-term delivery, have lifted by almost 4 % this morning, amid lower wind generation. The drop in wind generation has been replenished with higher generation from Nat Gas. As a result, UK Electricity day ahead has reached £58.35/MWh, which mirror a direction of Nat Gas spot prices. Conversely, month ahead prices slipped amid falling prices of carbon emissions. Month ahead is currently trading at £56.60/MWh.

Seasonal contracts witnessed limited activity this morning, however, we would expect prices to continue climbing up today taking support from rising Nat Gas and Brent Crude prices. The forward contracts tumbled last Friday, supported by speculations that OPEC is going to relax the Oil production curb. Since Tuesday, Oil prices started recovering. As a result, Win-18 closed yesterday’s session at £61.95/MWh, whereas Summer-19 is currently at £49.50/MWh. Those prices are not far from highest levels achieved so far which are: £62.61/MWh and £51.88/MWh for Win-18 and Sum-19 respectively.

UK Natural Gas prices:

UK Nat Gas prices for the day ahead contract is currently trading at 59.75p/th, up 2.41% (1.4p/th), amid heavy Gas demand for Electricity. The Gas demand system is currently undersupplied by 14mcm/d. Month ahead is also trading higher and is currently at 58.40p/th.

Seasonal contracts continue an upward movement, with Win-18 currently trading at 65.28p/th and Sum-19 at 48.60p/th. Once again, prices of Oil are a main reason behind rises in the UK commodity prices. After the last OPEC meeting, Oil prices tumbled for a short period of time. however, since we start observing a recovery in price of Brent Crude. According to Thomson Reuters, Saudi Aramco, the world’s largest crude exporter, will realise its official selling prices (OSPs) for July-loading cargos soon. This set of prices is a leading indicator for much of the exports from the Middle East. The higher than expected selling price will support the bullish momentum of oil prices and will have a footprint in the UK commodity prices.

Macroeconomics:

The U.S threatened new tariffs on $50bil of Chinese goods. On Tuesday, Washington warned against a new restriction on imports of Chinese goods if the country doesn’t address the issue of theft of American intellectual property. In Europe, most of the financial markets are looking at the developments in Italy. While, European markets started a slow recovery after the turmoil in the Italian parliament, there is a substantial risk of political crisis in the 4th biggest economy in Europe. The benchmark Italian share index rose 1.4%. London and Frankfurt were also higher after sharp falls on Tuesday.