After a prolonged winter, we are now seeing an extreme start to summer with my children asking why water doesn’t fall from the sky anymore, and why did I think England were rubbish? But, how is this impacting energy markets?
Mild temperatures and low demand have seen the power market well supplied, but this hasn’t resulted in falling costs. Oil has found strength and taken other commodities with it. Coal and carbon increases have supported increases across Europe. The impact of a harsh start to 2018 is still being seen with insufficient gas stocks not helping with costs and any reduction in power costs is extremely short lived.
The fantastic weather in June, above seasonal normal temperature throughout, has been great for the country, but the increased air conditioning demand and the reduction in wind generation has resulted in gas fired generation increasing to meet demand.
The warm weather reduced demand, but the lack of wind generation caused by beautiful sunny days meant that gas became an important generation asset, increasing costs. There was some downside in the gas pricing, brought about by improved flows to the UK, a drop in the oil price and a fall in gas powered generation. The downside, again only brief, was ended due to prolonged periods without wind generation, exports to the continent, low storage and limited LNG.
The speculation around oil has been the main driver behind the bullish markets. Starting the month at $74/bbl as reports suggested an increase to the global oil production. Pressure mounted as OPEC posturing commenced, with Iran threatening to pull out of any agreement. The deal was eventually agreed at an increase of 1 million barrels per day. The bearish sentiment almost immediately being wiped out by President Trump calling for boycotts on Iranian oil, sending prices briefly above $80/bbl.
Weather is forecast to remain warm until the end of the month, solar generation will be strong, but if the weather breaks this will provide an increase to the wind generation and pressure the gas pricing.
The system could see bullish pressure from exports to the continent, meaning any gas field outages could tighten the system. There are a couple of LNG tankers due to arrive in the UK which could bring some required gas abundance.
Oil and coal are being driven by the US stance against Iran.
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