Slump in power prices follows May surge

Tuesday 5th June 2018

After a steep and fairly relentless upturn through May across gas and power, we have finally seen some bearishness return in recent days. The key driver remains oil, which hit a three-and-a-half year high above $80 a barrel on the back of Iranian and Venezuelan production fears. However, in spite of the success of the OPEC / Russia production cut in increasing the cost of oil, there now appears a desire to stop the market overheating – hence a tacit agreement to increase production by 1 million barrels per day to counteract the collapse of the Venezuela oil industry and the expected sanctions that will hit Iran. This has pushed Brent Crude back down to $75 and other energy markets have followed.

Other factors currently affecting gas and power include the summer replenishment of European gas stocks (so hit by the prolonged cold weather during the first quarter of 2018) and also by the strength of coal and carbon. Short-term is up due to low wind generation and unanticipated Norwegian gas outages.