Gradual increase in Annuals seen during past fortnight

Wednesday 8th August 2018

Over the last fortnight, wholesale gas and power prices have been dictated by two key drivers – crude oil and the ongoing European heatwave.

Bearishness has been provided by Brent crude which has remained subdued sub-$75 with the prospect of a US-China trade war and increased OPEC / Russia production. This sentiment has been reflected in gas prices in recent days.

However, little of this downward pressure has been accepted on the power indices, where other bullish factors act as a counter. As previously discussed, the heatwave has dramatically increased cooling demand. The stillness of the weather means wind generation has been negligible. Hence more gas has been used for generation in the UK, Germany has burnt more coal and the French nuclear industry remains compromised by the lack of water. All this means that CO2 emissions have increased and thus the cost of traded carbon, adding weight to power prices.

Short-term markets are fairly steady – gas demand for generation obviously remains high in the UK, although there was some respite last weekend when the blustery lull in the heatwave meant wind turbines added value.