Markets spike on gas outages and record high carbon

Thursday 18th April 2019

It has been a generally bullish fortnight, with significant spikes in the gas and power markets on 3rd and 4th April. This came after further declines at the start of the month and effectively wiped out two months’ worth of reductions. Markets have since began to reverse again, with weather-driven reductions in the short-term curves influencing Annuals. However, markets had another bullish day on Wednesday 17th, as the warmer forecasts for the Bank Holiday have been revised down.

The key drivers for the early-April spike were unanticipated Norwegian gas outages and a buoyant European carbon market. The reduction in gas flows spooked the market as gas demand was rising on below average temperatures and low wind generation. The carbon market was boosted by the agreed delay to Brexit, meaning the UK would not be “dumping” carbon allowances on the market which would ultimately reduce the cost of carbon. As such, the market surged to an 11-year high.

Another key effect of the spike is that the Winter ’19 season and thus the October ’19 Annual are now at a cost premium to future Annuals again (backwardation).