All wholesale power and gas contracts fell in February as comfortable gas supplies and record high winter temperatures eased gas and power demand.
Day-ahead power continued to fall on the previous month, dropping 19.5% to average £50.2/MWh in February, following its gas counterpart lower. The contract went as low as £47.3/MWh on 25 February, a one-year low as declining gas prices offset forecasts of lower wind generation, which typically causes power prices to rise. All seasonal power prices decreased in February, down 4.8% on average. Summer 19 power fell 9.8% to average £49.7/MWh, slipping to a nine-month low of £47.5/MWh on 25 February.
Day-ahead gas fell 18.9% to average 47.4p/th in February, dropping to a 17-month low of 43.8p/th on 25 February as temperatures were well above seasonal normal levels throughout much of the month. The gas system was well supplied during the month following the arrival of 12 LNG tankers, and comfortable gas supplies from UKCS and Norway. All seasonal gas contracts decreased in February, dropping 5.3% on average, despite an increase in Brent crude oil prices. Summer 19 gas declined 12.6% to average 46.0p/th, and the contract went down to 44.1p/th on 25 February, a 10-month low.
Brent crude oil recovers as global supply tightens
Brent crude oil prices continued to recover in February, up 7.0% to average $64.3/bl. Prices have been supported by OPEC’s production cuts taking the group’s supply to four-year lows, and sanctions on Venezuela and Iran, which have further acted to reduce global oil supplies. This growth was despite US crude oil output hitting a record 12mn bpd towards the end of the month, and concerns that the ongoing US-China trade war would dampen global economic growth and reduce oil demand. According to a report by the Bank of America Merrill Lynch, Brent crude oil prices are expected to average $70/bl in 2019 and have already risen to just below $68.0/bl in February, a three-month high.
EU ETS carbon prices fell for the first time in three months, down 10.2% to average €21.1/t. Prices have decreased from the previous month as warmer weather reduced fossil fuel power generation across Europe, and therefore lowered demand for emissions allowances.
API 2 coal prices dropped for a second consecutive month, down 6.8% to average $78.6/t in February. Coal prices fell amid weak demand in the Northern Hemisphere, as both Europe and Asia faced temperatures well above seasonal normal levels.
The month-ahead: Mild weather expected to continue, dampening demand in March
Current forecasts expect temperatures to fall from recent highs but remain near seasonal normal levels through March. This is expected to keep gas and power prices low, as comfortable supplies are predicted to continue into the coming month with several LNG tankers scheduled to arrive in early March. Brent crude oil prices may rise towards $70/bl in the month-ahead as OPEC production cuts continue. However, concerns of weak economic growth and rising US crude production may cap gains.
