Annual contracts fell 5-6% across the week. Brent crude oil prices fell from highs of over $80/bbl to $76/bbl on speculation over higher OPEC production to offset Iranian sanctions. US oil prices posted even heavier losses as American production levels rose to new highs. The carbon market also recorded heavy weekly losses as multi-year highs encouraged profit-taking. It remains to be seen if last week’s decline is a pause in the uptrend or will form part of a stronger correction in the coming weeks. Short-term gas prices have pushed higher this morning, as the UK enters its heaviest period of maintenance for the year.
Work in Norway and on the UKCS has cut gas production and left the system undersupplied on several occasions last week. The Interconnector is offline for two weeks later this month and LNG imports remain down year-on-year, reducing flexibility in the gas system. However, above seasonal-normal, temperatures forecast for much of June should help offset some of these issues.
Power prices across the curve have moved lower, echoing losses seen in the wider gas, oil and carbon markets last week. An upward rally, which began in mid-March, pushed annual electricity contracts to multi-year highs in late May. However, the upward move stalled last week. The multi-year peak may have attracted some profit taking from traders. However, it remains to be seen if the push lower will continue or whether we will see a consolidation, with prices still markedly higher year-on-year following the gains seen in recent months.
A drop in the gas and carbon market has helped to push the power market lower, reducing the cost of fossil fuel generation. However, gas remains a major element of the fuel mix and has supported Day-ahead prices in the last week. Very low wind output – which is forecast to continue this week – has left the grid dependent on gas plants to meet demand. While the impact has been lessened by the weak summer consumption, Day-ahead prices still climbed around 3% last week, with gas plants consistently providing 50-60% of electricity.