Losses were heaviest in the balance of winter contracts, with Winter 18 prices down nearly 5%. Uncertainty over demand and the lack of supply flexibility to cope with higher consumption have supported a strong upward trend in energy contracts. Winter 18 gas prices peaked at 83p/th before falling for the rest of the week.
Temperatures for the first half of October are mixed with long-range forecasts suggesting a severe cold snap is more likely in Q1 2019. Britain will be reliant on imports to meet demand, particularly during cold spells, as the country lacks storage capacity.
The first day of winter today has triggered a strong increase in supply, with Langeled imports at maximum. Norwegian fields have switched to a winter profile, raising production. The gas system has opened 30mcm oversupplied. However, demand will continue to rise in the coming weeks, despite strong winds helping to curb gas use for power generation. Domestic gas burn is accounting for nearly two-thirds of demand today.
Electricity contracts mirrored the gas market, rising on Monday before pushing lower for the rest of the week. The October 18 contract fell more than 5%. Elevated prices so close to the start of winter added selling pressure, as traders looked to avoid long positions ahead of the seasonal switch. Short-term coal prices have hit $100/tonne helping support the use of coal in the fuel mix. Seasonal electricity contracts ended the week around the lows of the range they have held for the last month.
The very strong upward trend seen during the summer has given way to a period of consolidation through September and increased levels of volatility. Uncertainty surrounding the winter season remains a supportive factor. Rising electricity demand will play an increasing role through October, particularly once the clocks change at the end of the month.
Wind output has been very strong and supply is expected to reach 10GW at the start of this week. The grid remains vulnerable to a cold temperature and low wind scenario, which could tighten supply margins more heavily than during the Beast from the East cold snap, when high demand coincided with very strong winds.