Bearish oil markets, warmer weather and an oversupplied gas system brought a prolonged period of price growth to an end in June, with some power and gas contracts showing falls.
In the nearer term, day-ahead power slipped just 0.2% to average £54.2/MWh. Prices were relatively stable throughout June despite large fluctuations in renewables output. Day-ahead power prices have remained higher then their levels at the start of 2018, an unusual trend considering a move into summer months.
After a prolonged period of growth, seasonal power prices stabilised in June with contracts from winter 18 to winter 20 declining just 0.4% across the month. The exception was winter 18 power which gained 0.5% to £60.2/MWh. Growth in prices stagnated as gas and oil prices also brought their upwards trends to an end.
Day-ahead gas fell 1.2% to average 55.5p/th. Prices dropped from 58.9p/th at the start of June to lows of 52.3p/th, as an interconnector outage from 13 to 28 June reduced the ability to export gas and left the system oversupplied.
Seasonal gas contracts experienced mixed movements in June, rising 0.1% on average. Winter 18 gas prices rose 0.5% to average 62.7p/th. Gains in winter prices were limited as the interconnector outage allowed for increased gas storage injection for UK facilities, refilling storage levels to 40% of total capacity by 25 June.
Commodities react bullishly to geopolitical tensions
Brent crude oil prices fell 1.9% to average $75.5/bl during June. Prices were volatile throughout the month in the run up to the OPEC meeting in Vienna on 22 June, but were ultimately weighed on by a decision that will see the group increase production by around 600,000bpd. However, Brent crude prices responded bullishly in the wake of OPEC’s announcement as supply disruptions in Canada, unease at Libya’s National Oil Corporation and an announcement from US officials for importers to stop buying Iranian crude from November, all led to uncertainty in the market. Prices rose towards $77.0/bl at the end of the month.
API 2 coal prices rose 0.8% to average $88.0 /t, peaking at $89.8/t on 13 and 14 June. Coal prices continued to track fluctuations in oil prices throughout the month, but could see bearish behaviour as coal has been included in the list of 650 items facing increased tariffs from China as part of the ongoing trade dispute with the US.
EU ETS carbon prices gained 3.0% to average €15.2/t, hitting €16.4/t on 5 June – a fresh seven-year high.
The month-ahead: Market prices stabilise as upward drivers stagnate after recent volatility
Gas and power markets could see more stable prices in July, as months of volatile movement in the commodity markets begins to calm. Improved gas supply security following strong injections into gas storage sites amid the IUK outage could see gas contracts less prone to volatility in commodity markets.
However, oil is still unsettled despite OPEC’s agreement as geopolitical tensions continue to escalate. EU ETS carbon could move down with improving hydro stocks in Western Europe.