Bearish Annuals turn bullish on short-term drivers

Monday 17th December 2018

Gas and power Annuals have dipped then turned upwards through the course of December. The month started in bearish territory, heavily influenced by the weakness of oil and the prolonged mild weather. However, as the weather cooled and OPEC+ agreed an oil production cut, so prices turned higher. Drivers were initially short-term, but this quickly fed through to Annuals. There has also been upward pressure from Norwegian gas outages, nuclear reactors being offline and a recovery in coal and carbon prices. More substantial upward movement was prevented by good renewables output, with strong winds and even some unseasonal solar generation in the mix. The growing influence of renewable energy is clear, with a record 22% of UK power output from wind in November – the more power sourced from wind, the lower the pressure on gas.

From a fundamental perspective, gas storage is strong. It appears that the problems associated with the Beast last winter equate to much higher storage levels now. There will perhaps therefore be less volatility as we enter 2019 than we saw in 2018.