Prices rebound on cooler weather and stronger oil

Tuesday 21st May 2019

The first half of May has seen gas and power markets recover from the downturn at the end of April. There have been two key drivers for this – the weather and the prospect of higher oil prices.

The temperature for the start of May has been below the seasonal average in the UK and elsewhere in Europe. As such, gas heating demand is above expectation. It has also been a period with low wind speeds and has been generally overcast, impacting renewable output (low wind and solar generation). As such there has also been more demand for gas-fired electricity generation.

Whilst oil is still below the 5-month highs seen in late April, there is the sense that it could rise on the escalating tension between the US and Iran that has seen an America aircraft carrier sent to the Persian Gulf and reports of rocket attacks in Iraq. Whilst Iranian oil is already subject to international sanctions, it is the possibility of any conflict affecting neighbouring states in the Middle East that could push crude indices higher.