Wholesale gas and power contracts have edged lower in the last week, stabilising below the previous week’s highs. Prices remain around 15% above their mid-September levels. However, the upward rally has been on pause for most of the week with prices stabilising below their 2016 highs. It remains to be seen whether the upward move will resume, we will see a further drop back in prices or contracts will continue to move sideways.
Supply-demand fundamentals remain little changed across the week and the market remains wary of potential price spikes through the winter, triggered by tightening supply margins. Strong gas for power demand, continued exports to Europe and very low LNG availability have kept the gas system tight. Just one LNG tanker has been booked for delivery so far this month and it is not due to arrive until next week. Day-ahead prices remain around one-year highs. The system has been dependent on mid-range storage withdrawals to meet demand, with Rough storage stocks still unavailable until at least November.
The upward trend had been even sharper for the electricity market, amid concerns over French nuclear availability and increased fossil fuel generation. Prices have since edged lower in the last week but remain elevated from a month ago. Concerns over tight supply margins through the winter continue to offer support. The market remains wary of spikes in Day-ahead prices, having seen prices hit record highs in September. French nuclear issues are ongoing, halting imports to the UK from the region. The UK has been heavily dependent on gas-fired power plant in the last week, with it consistently providing over 60% of UK supply. Peak demand has risen to 42GW and is expected to rise further next month as the clocks change, making evenings darker.
Movement in the crude oil market has had very little impact on gas and power prices. The market briefly hit one-year highs on Monday but has since fallen back over fresh oversupply concerns. OPEC announced that its production in September rose to an eight-year high, putting in doubt the effectiveness of the recently agreed production cut. The group has also forecast a larger surplus in non-OPEC members for 2017.