Continued decline in gas and power indices

Tuesday 21st March 2017

The decline in gas and power indices since mid-January continues. Various factors are influencing this, but the main driver is an abundance of gas. Deliveries of gas are strong, with the UK exporting to Belgium through the interconnector at present. The country is receiving healthy shipments of LNG. The weather is also much milder than forecast across Europe, with most days several degrees above seasonal norms. Consequently, heating demand is down. At the same time, wind generation is giving strong power output, reducing the short-term market further (month-ahead has dropped below £42/MWh for the first time since September).

The short-term market is driving Annuals as fundamentals remain benign. The six month OPEC production cut that was so feared for its bullish influence on crude oil is now being countered by increased US production and healthy inventory figures. As such, the Brent index has broken from the c.$55/barrel level it has held for 3 months and dropped 10%, whilst the US WTI crude index has now passed below the psychological $50 mark.