Annual gas and power prices have risen in the last week amid increased levels of market volatility. Power prices have fully recovered early losses in the market. The UK Winter 16 power contract has climbed nearly 10% since Tuesday, reaching highs from early 2015, amid growing concerns over French nuclear availability, which has driven up energy prices across Europe. French power prices have hit one-year highs as maintenance and outages in France have cut nuclear plant availability to just 55%, down significantly on this time last year. EDF announced total nuclear production for 2016 is expected to be the lowest in more than ten years. News of further safety tests at 12 reactors raised concerns over extended outages heading into the winter season. France depends heavily on nuclear power for electricity generation. The reduced availability has raised expectations for increased gas and coal-fired generation during the upcoming winter season. This has supported a strong uptrend in the wider commodity markets, pushing up gas, coal and carbon prices across Europe.
The tight supply availability will also increase the costs of interconnection with France for the UK. French imports to the UK have been weak in recent days as a result of maintenance, which is expected to continue for the next three weeks.
Gas supply-demand fundamentals have been little changed across the week. Exports to Europe remain firm, supporting consumption, while demand has been met by imports, LNG sendout and mid-range storage withdrawals. However, there have been concerns over a slowdown in the LNG delivery schedule to the UK. Just one tanker has arrived since 21 September and no tankers have yet been booked for October, which could tighten supply for the coming month.
Crude oil prices have seen similar levels of volatility in the last week as the market reacted to speculation surrounding OPEC talks. The oil production cartel agreed to a modest cut in output late on Wednesday, triggering a 5% spike in prices. However, the reduction amounts to just 2% of current daily OPEC output with production already close to maximum levels.