Prices fluctuate on changing weather forecasts

Thursday 4th February 2021

As has been the case more so than ever this winter, fluctuating weather patterns continue to dictate energy prices. For now, it looks as though the extremes on the short-term market have abated, as the weather generally gets warmer across Europe and the wider Northern Hemisphere. Milder temperatures in Asia have heralded a drop in LNG demand and price, as well as the associated shipping costs. Another driver for price is the diminishing expectation of another “Beast from the East” weather event, meaning gas storage, although depleted versus last year’s record volumes, is considered to be at a comfortable level.

Whilst Annuals have been generally bearish over the last fortnight, they have garnered support from stronger EU carbon and oil prices. Carbon is up on trader hedging prior to the new UK (post-EU) system being implemented, and oil is stronger on the back of meaningful Saudi production cuts and the new US Administration’s stimulus package.

There are of course knock-on pressures for Annual prices from the volatility seen on short-term. The increased European gas burn due to cold weather, reduced wind generation and Asian LNG diversion has reduced 2021 gas storage. As such, replenishment in the coming summer will be more significant than 2020, so summer prices are holding up better than usual.

The other big factor for 2021 energy prices is the roll-out and efficacy of the vaccines. With the UK amongst the global leaders on doses administered, a return of energy demand may be seen here earlier than across Europe. However, with France relatively slow on vaccines, so there may be excess French generation alongside the UK’s increased demand, so any surge in wholesale may be tempered.