UK gas and power prices open firmer

UK gas and power contracts are slow to start trading this morning, however bids in the UK power market are above Friday’s closing price. Thin liquidity looks set to remain an issue, with most counterparties working from home and wider risk appetite seems low. Movements today are likely to be driven by the wider commodity complex, notably carbon EUAs which is trading above €30/tCO2e.

Demand could begin to increase now lockdown measures are being relaxed, and this could also spur a wider commodity rally. However, there is still a huge degree of uncertainty around the whole situation. US Crude production is now expected to average around 11.6million barrels per day for 2020, with the EIA reporting that this should keep prices in check and at present they are not anticipating Brent prices will trade above $50/bbl.

The UK gas system has opened in balance this morning, with forecast demand slightly above seasonal normal levels as wind generation is slightly down on previous days. CCGT is subsequently contributing to 50% of the UK power stack, with wind generation down at 5GW However a tropical cyclone forming off the South East Cost of the United States could see wind forecasts revised upward toward the back end of this week, which may again put downward pressure on prompt contracts.  

The pound has moved off of the lows we saw in June, when sterling was trading down at €1.09 against the euro. A more positive global outlook has improved sentiment amongst traders, with the pound now moving back toward the €1.12 handle. Further Brexit trade talks may however mean that the pound encounters further headwinds in the coming days, with accelerated talks in process until the end of July.