After falling prices in the run-up to the OPEC meeting, volatility returned to the market last week.
Announcements from OPEC nations were met with steep swings in the price of oil. Iran’s statement that it would like to see no increase in output, betrayed an uneasiness about its market share following US sanctions.
It eventually started to look like a deal would be done as even Iran agreed to a limited increase in production. However, because many traders expected oil production to increase further, this caused prices to rise sharply on Friday.
A significant fall in US storage levels added to concerns as the US enters its high demand season. Brent oil closed the week up 3.4% at $75.55 per barrel.
In the UK, annual maintenance on the UK-Belgium interconnector meant that gas could not be exported. This meant that prices rose on a well-supplied system. Three unexpected outages in the North Sea saw prices rise further but the system coped well.
Electricity prices tracked gas prices, but losses were limited by a number of nuclear outages and lower wind output earlier on in the week. Low wind output forecast for this week saw pressure building on electricity prices.
All contracts saw small increases of between 1 and 1.5% last week after the previous week’s falls. Prices for delivery before October changed the least.
Winter 2018 holds risk premium although gas inventories across Europe seem to be recovering in time for the colder weather so two and three-year contracts are being priced cheaper than one year contracts.
Concern over gas shortages may be receding, but there is no guarantee that these concerns will not return and with ongoing political developments, clients may wish to wait and see how this market develops.