Weekly Market Update for 20 November 2017

Weekly Market Update for 20 November 2017

Gas prices fell steadily last week, correcting from more than two year highs.

Seasonal gas prices found technical support at what was previous resistance levels, marked by the October highs. Annual contracts remain above these levels, despite the losses. Short-term prices dropped briefly below these highs. However, a change in weather forecasts today shows colder conditions for December. This has pushed the balance of winter prices up 3%, back above their previous October highs. Cold temperatures had pushed demand above 310mcm and Day-ahead prices hit 54p/th in anticipation of higher consumption. However, milder weather forecasts led to a drop in demand of more than 50mcm/day. The prompt fell as the stress on the gas supply network eased. Steady imports from Norway and the Netherlands helped the gas system to remain balanced throughout. The UK remains dependent on imports, with limited storage stocks. LNG deliveries are also low as the UK struggles to compete on price with the Asian market. A sharp rise in Chinese gas demand has helped give Asian LNG prices a 30% premium over Europe. Just one tanker has been booked for November, down from five arrivals last month.

Forward power prices have fallen back from recent highs, mirroring a modest pullback in gas, oil and coal prices in the last week. Falling Chinese coal demand as part of a switch to gas weakened coal prices, dropping from near three-year highs. This led to a drop in longer-dated power prices. However, annual electricity contracts remain above their September and October highs following strong gains at the start of November. Cold and dark weather conditions pushed peak power demand to highs of 50GW. Lower wind output increased the share of coal in the generation mix at times. However, Day-ahead power prices remain capped, holding in a range between £45 and £55/MWh. Above seasonal-normal temperatures are forecast this week but forecasts have been revised colder for the end of the month and December. December power prices dropped more than 3% last week as a result of expectations of healthy supply margins.

Ross Moffat

Posted by on Monday, the 20. November at 13.47

Ross Moffat has been a part of the Market Intelligence team at Utilitywise since early 2014. His responsibilities include delivering Market Intelligence reports to clients and managing the Utility Insights Twitter account. Ross has a first class Honours degree in Business and Marketing from the University of Stirling.