Year-ahead gas and power prices have been falling for the last week. After reaching close to the highs for the month in the previous week, prices for the coming summer and next winter have since dropped 2-3%. Stronger reductions have developed for contracts delivering for the remainder of this winter, with expectations of a mild February and subsequently lower energy demand across Europe.
The UK has coped with the recent cold snap, with supplies more than adequate to cover the elevated heating demand. Prices were still supported in recent weeks. With colder conditions across Europe, there were concerns over increased competition for supplies, particularly with reduced flexibility due to lower storage reserves and LNG availability. European storage levels were high before Christmas, but the cold weather has reduced stocks sharply. Meanwhile, the problems at Rough storage last year mean overall UK stocks are down significantly year-on-year. The problems over LNG availability are linked to high Asian prices limiting the possibility of cargoes being delivered to Europe. The UK has had only one LNG cargo this month. On the electricity side, cold weather and continued short days have kept demand elevated. One of the highest demand levels this season occurred on Monday. Low wind at the start of the week increased concerns over the availability of supplies to meet the strong demand. However, since then, wind levels have risen, helping to pull down prices, particularly the Day-ahead contract.