We have seen Annuals rise over the past fortnight, particularly of electricity (gas increases have been less severe). The key October 2022 Annual remains at a premium to 2023 and further out, but the differential is narrowing. It will come as no surprise that the main driver remains the war in Ukraine and what looks likely to be a prolonged stalemate. Some prices have been affected by Russian demands for gas payments in roubles, and some companies’ and nations’ reluctance to do this. An EU-wide deal to cut Russian oil imports has seen another surge in Brent crude, with the key $120/barrel marker being passed again. It does seem that the cost of gas and thus power is much more closely linked to that of oil than for several years.

Short-term markets have been far more benign, with clement weather and good renewable output helping to suppress prices – the UK continues to export power into the French market where prices remain at a premium to the UK. It is however the key Winter ’22 that remains high-risk, with uncertainty over supplies, particularly from Russia.  

An interesting statistic in recent weeks is that US gas prices are nearing 2008 levels, i.e. a time when fracking was not exploited and just before the financial crisis hit and markets crashed. This demonstrates the global impact of the war in Ukraine and how even energy-rich America is not insulated from its effects. Japan too is looking to restart nuclear plant in response to the global energy crisis.

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