Gains of up to 8% were seen across the gas curve last week as contracts rallied sharply in line with a move reflected across the wider power, oil, carbon and coal markets. Prices have been climbing since mid-March but gains accelerated last week following a shift in the oil market. Brent crude prices jumped around $4/bbl to new 3.5-year highs after President Trump withdrew the US from a nuclear deal with Iran and pledged to reintroduce sanctions on the country, expected to cut oil production in the region. Prices across the energy mix have been climbing since.
The Winter 18 contract has hit new highs last seen in late 2014, having climbed more than 16% since the start of April. Supply-demand fundamentals were little changed last week and provided little impetus to price movement. Mild summer temperatures have weighed on demand, although unplanned outages in Norway and the UK disrupted production. Strong storage injections are still required this summer but reserves have risen in recent weeks and are no longer at five-year lows.
Forward power prices followed the wider commodity mix higher and extended a rally that has been ongoing since mid-March. Further gains in the coal and carbon markets last week added to the cost of generation, providing further support to longer-dated electricity contracts. Weekly gains of 4-5% across the power curve helped push annual contracts to new multi-year highs. Year-ahead prices for October 2018 have climbed over 18% in the last two months. Coal prices are testing multi-year highs seen in January 2018, while the carbon market has broken out of its recent range to new six-year highs at over €14.50/tCO2e. Long-term maintenance at the Hunterston B nuclear plant provided further support, with output expected to fall by 40% for the next six months. However, Day-ahead power prices saw little movement, holding in a narrow range at £51/MWh.
Peak demand continues to fall amid bright and mild temperatures and is expected to drop to 32GW this week. High volumes of solar availability is also drawing consumption away from the grid, cutting overall demand.