UK Energy Markets Dashboard

UK nearer term gas and power prices have settled into a range following the sharp correction earlier in the month, trading up and down on news but not yet making any new highs or lows, while prices beyond Summer 22 do look to be easing further away from the 1^st July peak. Norwegian gas output is back to near capacity following lengthy maintenance though Russian flows remain curbed by maintenance to Nord Stream 1. German Chancellor Angela Merkel met US president Joe Biden last week with Biden conceding sanctions aiming to disrupt the completion of Nord Stream 2 are now not in the U.S.’s best interests. The project is due to be completed by end of August and should see increased flows of Russian gas to Europe. Despite the heatwave in the UK European temperatures are at seasonal norm keeping gas demand stable, while poor wind generation in the UK is being partially compensated by Solar output, with last week seeing solar providing 10% of the UK’s power demand. The gas storage situation remains precarious and high month ahead and day ahead prices are not providing the incentive to inject, supporting the huge risk premium on the Winter 21 contract.

There was a huge drop in oil prices yesterday which came after OPEC+ agreed on Sunday to further scale back production cuts with the UAE, the last holdout, agreeing to a deal that will see an extra 2 million barrels per day from August until the year end with overall cuts down from 10mbpd to 5.8mbd, with the cuts expected to be phased out completely by end of 2022. However, analysts believe the 7%, $4 drop in prices was driven more by a worsening Covid outlook with concerns over an explosion of the delta variant weighing on demand. While demand in the U.S. has continued to strengthen, India is cutting imports amid fears of over supplier and further reduced demand. Brent is currently trading just below the $70 mark having been at over $75 most of last week. EUA Carbon has been relatively quiet, with EU announcements reaffirming environmental commitments already baked into the prices, which has been holding steady in the low €50’s back where it was from mid-May to early June.

Outlook for the week ahead…

With near term prices trading in the middle of their recent range there is little direction indicated from the technical outlook, though curve prices, especially the Winters for both gas and power are starting to display bearish signals. The fundamentals still suggest plenty of upside risk and support to prices but with so much risk premium baked into near term prices there remains lots of downside potential if there are no new shocks and we see gas supply increasing. Growing concerns around the delta variant are dampening the global economic outlook and with the so called ‘pingdemic’ in the UK threatening to disrupt business any drop off in demand could see energy prices fall back.