Gas and Power
- Volatility was in the market as we moved from summer to winter 2018, with large market movements starting the month. The markets started to settle and become bearish as the weather outlook became warmer and the level of renewables picked up significantly with wind being a major contributor. This was tempered by the increase in CCGT generation as the weather conditions become wintery.
- Oil played a large part in the bearish drivers of gas and electricity as it peaked in October and then fell as Saudi Arabia supported production levels.
- Gas supply was very healthy during the month with 11 LNG tankers arriving, lower requirements from the system and easy flexibility from the interconnectors.
Underlying
- Coal started the month above $100/tonne but fell away to $94/tonne. Carbon prices had been rangebound between €18-€21/tCO2e but dropped to €16/tonne, which is their lowest price since August, on the hopes of the UL reducing their carbon taxes in the next few years. However, following the UK Budget speech by Phillip Hammond on the 29th, these expectations did not materialise as UK tax on carbon were frozen. In the event there is no final agreement on EU ETS following Brexit, then UK will impose a flat tax rate of £16/tonne of CO2.
- Brent Oil reached $86/bbl early in October, the highest it has been since 2014. The main drivers being reduced exports from Iran, more US sanctions against Iran, an increase in tensions between the US and China, and the political issues arising from Saudi Arabia. However, support from Saudi Arabia over oil production levels has weighed heavily on prices and they fell to $75/bbl.
- The £ reached levels of €1.14 following on from positive Brexit discussions, but the volatility and inability to nail down a deal saw the price fall to €1.12.
Outlook
- On the bearish side; November temperatures are forecast to be above seasonal norms, which will weigh on the gas prices, there are at least two LNG shipments expected in to the UK from Russia, and the main storage facilities are approaching full capacity.
- Against that, the bullish drivers remain the weather volatility and the geopolitical tensions around OPEC and oil supply coming out of areas that the US are putting under sanctions.
For further discussions about the markets and to discuss strategies, please contact Adam Throup, [email protected].
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