Losses were most prominent on the Day-ahead and balance of summer contracts as the UK experienced persistent gas oversupply.
Day-ahead gas prices have dropped over 25% in the last seven days, falling to seven-year lows at just 20p/therm. Low demand and market oversupply has weighed heavily on short-term contracts. The gas system has been frequently oversupplied in the last week, despite a rise in exports to Europe to near maximum levels, which has supported demand. Mid-range storage withdrawals and stronger LNG supplies have helped to meet this demand and minimise the impact of ongoing Norwegian maintenance. Work on the Norwegian Continental Shelf has ramped up in the last week, significantly reducing the overall production levels from the region. However, the impact to the UK has been minimal due to weak demand and the low levels at which it was already receiving gas from Norway. Two LNG tankers have so far been booked for September delivery, with sendout from South Hook subsequently increasing in the last few days.
Gas prices for the winter have continued to edge lower following the announcement from Centrica that the Rough storage site would be available for withdrawals from 1 November. The increased deliverability has weakened Winter prices, despite there still being a significant shortfall in stock levels at the site. High volumes of European storage could offer a channel for imports but this would require the UK to have a price premium over the Continental markets.
Weather forecasts for the upcoming winter remain unknown at this time, creating uncertainties for the market over demand levels and requirements for additional gas supplies. A cold start to the winter could lead to a sharp price rise if the UK needs to compete with Europe for additional gas supply. However, a warmer than expected winter could lead to a storage overhang heading into 2017, particularly in Europe.