Day-ahead power hits 4-month high

Wednesday 18th July 2018

We have seen a very volatile fortnight across energy indices. Short-term and Annuals were initially driven higher by the effect of the heatwave continuing across Europe. The still weather has meant that wind output is down and so more gas generation is required. Power demand has been up due to higher domestic cooling requirement than is typical.

Another effect of the heatwave is that some of the French nuclear fleet has been taken offline. Whilst UK nuclear power stations are coastal, meaning water cooling is not an issue, France has several inland stations next to rivers. River levels have dropped with the hot weather and nuclear capacity is thus reduced.

However, following these distinctly bullish drivers, we have finally seen some bearishness returning, predominantly driven by oil price movements. Whereas Brent crude appeared to be strengthening to $80+ just 10 days ago, it is currently trading below $72, a 3-month low. Various geopolitical factors have influenced this downturn – Libyan oil coming back online, OPEC increasing output, Russia expected to increase output post US-Russia talks – but the main driver is the pending trade war between the US and China. A trade war would typically slow the global economy and thus reduce oil demand, and prices reflect this. Knock on price effects have been seen across gas, power, LNG and coal as a consequence.