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Energy Market Update – 6th June 2018

Key Points:

  • UK electricity and gas prices continue trading in the narrow rangebound. The bullish sentiment seen two weeks ago was tapered by the stability of geopolitics and falling oil prices.
  • The UK retail sector boosted in the last month, PMI Service Sectors indicator is up at 54.00.

Electricity Prices:

UK electricity prices are trading within a narrow rangebound of 0.10-0.23 £/MWh. The month ahead contract is currently at £54.00/MWh, up £0.10/MWh (0.20%) on yesterday’s close. The current power generation mix is largely supplied by nat gas. Wind generation is significantly reduced, and coal is at 0%.  The demand system peak time is expected at 8pm at 31.7 GW.

Further out the curve, prices are consolidating around £57.90/MWh and £48.80/MWh for Win-18 and Sum-19 respectively. The other contracts such as like Win-19 and Sum-19 are at £54.15/MWh and £44.86/MWh respectively.

UK Natural Gas prices:

UK Natural Gas prices are trading higher this morning, however rises are capped within the rangebound of 0.4%.

Day ahead is at 57.25p/th, up by 0.15 p/th (0.26%), while month ahead is currently at 54.75p/th , up by 0.65p/th (1.21%) on yesterday close.  Prompt contracts have risen on the back of cooler temperatures and rising gas demand. Centrica revised the North Morecambe outage from -2.8 to -2.7 mcm/d, so we should see a better gas flow from the UK Continental Shelf. In addition, we expect three cargos of LNG arriving in the UK with a total volume of LNG gas about 670,000 cubic meters.

Forward curve prices are also trading higher. Win-18 gas contract is consolidating around 59.70p/th, while Sum-19 is 48.80p/th. The bullish oil prices this morning weighed on natural gas forward curve. However, the direction of oil has changed this afternoon, on the back of news that Saudi Arabia is going to increase oil production. We are likely to see a reverse in gas prices’ direction this afternoon.

Macroeconomics:

The retail sector has improved month on month, taking into the consideration recent PMI (Purchasing Manager’s Index) results. The PMI for May-18 was recorded at 54.0, up by 1.2 points from April. Although, the increase in PMI is still below data recoded in February-18, the leading indicator boosted the Pound against Dollar. The UK economy reveals some signs of recovery, however in our opinion, the countries economic conditions are still worse than they were before the Brexit referendum.