Markets see decline in volatility for end of November

Monday 5th December 2016

It has been quite an odd fortnight for markets since the last Market View. Whereas in the first half of November, there were steep falls across gas and power, the second half of the month has seen far less volatility. Annuals have kept on a relatively even keel in spite of an OPEC production cut finally being agreed – whereas OPEC often talks up such cuts that do not materialise due to objections, this time oil volumes should actually decrease, led by Saudi Arabia. Whilst oil has increased 17% in the last two weeks, gas annuals have only risen 1/10th of that, in spite of the obvious synergies between the commodities. There are conflicting theories as to the tangible effects of an OPEC cut – a production cut by the cartel should boost prices, but at the same time, it could also encourage shale production in the US as a higher price means a faster return for shale investors and oil is thus kept relatively cheap.

Away from oil, there was good news in that the Rough gas storage facility will be available for extractions from 9th December, lessening winter gas tightness. There has also been issues with the electricity interconnector between the UK and France – this has been damaged and will limit power flows until February. Usually this would cause trader consternation as power flows from France at winter peaks have been beneficial to the UK across several winters. However, with the French nuclear issues, the UK has been exporting to the continent this winter, so the interconnector being offline means UK power now remains here, putting downward pressure on short-term prices.

Will Bridge, Head of Procurement