General Softening of Annual Gas and Power Prices
Friday 2nd August 2019
The last fortnight of July saw a general softening of Annual gas and power prices. The spike up in July quickly corrected, with a correction not dissimilar to April, again demonstrating the extreme volatility of energy markets. At the time of writing, there has been a small upturn again, prompted by pressure on short-term as Western Europe experiences hotter temperatures and cooling demand rises. As such, the UK will be exporting power to the continent rather than importing as market forces drive the price.
A key driver for energy prices remains carbon, with the European emissions cost hitting a 13-year high just under the 30 Euro mark for a tonne of CO2. Counter to this, is the oil market, with indices remaining generally bearish (the Brent index was nearing $60 yesterday, way off the $70+ that OPEC want). It seems odd that oil is falling, when OPEC+ output was down in July, US inventory draws are significant and there are the massive geopolitical tensions in the Persian Gulf. However, alongside this upward pressure is the indication that the US can increase output as required to steady the price, the strength of the US dollar and a general sense that the world economy is slowing so demand for energy will drop.
The past fortnight has also seen a new PM, which in spite of a brief rally, sent sterling to a 28-month low versus the USD and Euro. Whether the chances of a no-deal Brexit are ‘a million to one against’ or the government is ‘working on the assumption’ of no-deal, the uncertainty is affecting the currency. This is ultimately making UK gas imports more expensive and UK energy exports more attractive to continental buyers, so potentially pushes up domestic prices.