There were continuing market falls last week as the cold came and went with little impact and oil stayed down. Last week’s anticipated problems from the cold Europe weather never materialised, negating the already built-up risk premium, compounded by more temperate forecasts coming through.
Oil maintained its downward trajectory with a sharp drop, as Saudi Arabia was seen to be pumping oil at record levels. Additionally, Russia looked to counter the proposed OPEC cuts and an increase in US storage was again seen; there are now worries over a potential glut of oil next year. Brent finished down steeply at 12% at $58.80 per barrel.
UK cold snap passes without incident
Despite the cold snap back home, gas supplies stayed solid. Norwegian flows and the LNG supply stayed high due to low Asian demand and consequently the system gas was able to ride the cold weather with no problems.
Although there was a brief midweek price jump on the back of rising domestic demand, the need to pull supply from storage was avoided. The marginal recovery in the Pound, coupled with good wind output, added to the downward price pressure. Electricity kept pace with gas, partly due to the aforementioned wind output, but also as there were no other notable supply problems and because carbon and coal enjoyed a relatively steady week.
There were minimum 2% drops across all contracts last week, however gas was hit harder than electricity. 2019 prices saw the biggest decline. This was in response to both the falling short term risk (helped by the unseasonably warm weather) and the dropping oil prices. As for the rest of the winter, prices plummeted by more than 5%, again due to the lessening weather impact. Further forward, price drops were more limited .
It is still winter, however, and there is continuing market volatility, with the potential for cold weather having a big impact, but last week’s large oil price drops are playing a significant part.
Those who are content to take the risk in a volatile market should watch this space. Whilst falling prices are probable, be prepared for a roller coaster ride.
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