Year-ahead gas and power prices have ticked higher in the last week. Contracts have returned to the range they traded in through the second half of November, but remain at a clear discount to their 2016 highs reached in early November.
Stronger oil prices brought some initial support to the gas market through the use of oil-linked gas contracts in Europe. Gas prices across the Continent have ticked higher in the last week, with the upward move feeding into the UK market. Brent crude briefly hit 18-month highs at $57/barrel after 11 non-OPEC countries agreed a supply cut, in addition to the OPEC deal. However, oil prices have since dropped back amid volatile trading as doubts emerge over whether the deal will be sufficient to rebalance the market. Record OPEC production in November also underlined the magnitude of the market oversupply. The US Federal Reserve agreed to raise interest rates for only the second time in a decade. This boosted the value of the dollar, making oil more expensive for overseas buyers, and pushed Brent crude back to $53/barrel.
A healthy gas supply continues to meet subdued winter demand levels. Consumption has been depressed by ongoing mild temperatures. Above seasonal normal conditions are forecast to continue for the rest of the year, cutting domestic heating demand. Rough storage withdrawals have restarted for the first time since May, although the site is not operating at a consistent sendout due to the low levels of stock. National Grid says gas supply is sufficient even without Rough, but doubts over the long-term viability of the site linger. A price premium over Europe continues to attract imports over the Interconnector and via the BBL pipeline. This has helped to offset continued low LNG sendout. Just two tankers have been booked for arrival in the UK so far this month.
Power prices have also pushed higher, despite a healthy supply outlook for the rest of winter. French nuclear availability is expected to be over 90% by mid-January as seven more units are cleared for return. Strong wind generation has also weighed on Day-ahead power prices, cutting the need for fossil fuel and boosting embedded generation, drawing demand away from the grid.