As we continue through one of the best summers most of us can remember, you would be forgiven for believing that commodity prices would be tumbling as home thermostats push through 25 degrees without the need for heating.
Power
Hot temperatures throughout the month were a key driver in the strength of power. Demand for power increased due to the following factors:
- Air conditioning consumption rose
- Wind generation reduced significantly as hot days didn’t even come with a cooling breeze
- Increase in the requirement for gas fired power generation
- Nuclear plants in France were limited as the warm weather reduced the cooling efficiency of the water around them
- Low water levels in the Rhine meant that coal shipments were struggling to reach power stations
Any bearish nature this month has come from the large amount of solar generation available.
Gas
Again, the bullish driver for gas has been the extremely warm and long summer that we are experiencing. Low renewable generation has seen an increase in gas generated power, there was an increase in the levels of gas exported back to the continent and the summer maintenance program saw outages at two gas fields. July has also seen some strike action on North Sea platforms operated by Total, with further strikes planned for August. LNG supplies were limited with only twotankers arriving, down from six this time last year, the tankers have been diverting to Asia.
On the bearish side, UK storage has increased and from a problematic position a few months ago, they are now slightly above the five year average levels.
Underlying Fuels
Oil
Starting the month at nearly $80/bbl, there were significant losses in the month and the month ahead contract ended July at $74.25/bbl. Pressure came from increased exports from Libya and Iraq, lobbying to get OPEC to increase production, the US suggesting they would use their oil reserves and the trade war between US and China. Support has come from sanctions against Iran and Venezuela. Oil remains extremely volatile and is being driven by geopolitical tensions as much as it is by supply and demand.
£
A bad month for the £ as Brexit negotiations continue to derail. At one point the £ fell to 1.119 against the Euro, the lowest it has been since March. With a lack of positive news coming from Downing Street it doesn’t look like the £ will strengthen any time soon.
Outlook
Although still warm for the UK summer, temperatures are set to dip slightly in August. The usual planned maintenance of gas plants continues throughout the month, which is already factored into the market but does limit opportunities for significant price drops as supply/demand levels will be closely matched. LNG cargoes look set to keep heading to Asia as they continue with their heatwave. The imminent Iranian sanctions will weigh heavy on oil pricing and push them higher.
For further discussions about the markets and to discuss strategies, please contact Adam Throup, [email protected].
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