UK wholesale energy markets ended last week sharply higher and have started this one on the back foot. Gas and power both settled up strongly on Friday, with prompt gas gaining around 5 per cent and front-month contracts closer to 6 per cent, as Middle East shipping risk, a thin European storage position and a Norwegian production outage combined. UK day-ahead baseload settled in the £205 to £210/MWh range and prompt power contracts moved up by close to £10/MWh. This morning the front of both curves has retreated as crude fell more than 3 per cent on signs of renewed diplomacy with Iran.
The supply backdrop this morning is more comfortable than Friday’s prices suggested. The UK gas system opened long, Norwegian flows to Britain have increased, and LNG send-out is set to roughly triple from Friday’s level on stronger terminal flows. Set against that, European storage remains well below the normal level for early November, wind output is forecast to fall through this week, and UK nuclear availability is thin. The forward curve continues to carry a heavy premium for the winter months and then drops away steeply from spring onwards, with second-quarter gas trading around 60 p/therm below the first quarter.
Elsewhere, crude has been the most volatile part of the complex, falling on the day and again this morning as talks between regional officials continued. Coal firmed modestly on the day but is lower over the week. Carbon was broadly unchanged in both schemes, with UK allowances holding a discount to European ones and drifting very slightly wider. Sterling was a touch firmer against both the euro and the dollar, giving a small offset on imported fuel costs.
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