All wholesale power and gas contracts fell in January as comfortable gas supplies prevented below seasonal normal temperatures from supporting prices.
Day-ahead power reversed the previous month’s gains, dropping 2.6% to average £62.3/MWh in January as it followed its gas counterpart lower. Despite this, day-ahead power rose to a 10-month high of £73.0/MWh on 23 January as wind generation was forecast below 1GW the following day. All seasonal power prices decreased in January, down 2.3% on average. Summer 19 power fell 4.4% to average £55.1/MWh, ending the month at £52.2/MWh, a five-month low.
Day-ahead gas fell 9.1% to average 58.5p/th in January, ending the month at a six-month low of 53.0p/th. Gas prices were pressured by below seasonal normal demand early in the month, and despite temperatures in the second half of January dropping to their coldest since March 2018, the gas system remained well supplied. All seasonal gas contracts decreased in January, dropping 4.2% on average, despite an increase in Brent crude oil prices. Summer 19 gas declined 7.4% to average 52.6p/th, ending the month at 48.9p/th, a six-month low.
Brent crude oil recovers as global supply tightens
Brent crude oil prices rose for the first time in three months, up 2.4% to average $60.1/bl in January. 2019 represented the start of OPEC’s latest round of production cuts, which aim to lower the group’s oil output by 1.2mn bpd until June. Oil prices were supported by news that the US government would impose sanctions against Venezuela’s PDVSA oil company and reports that Saudi Arabia would be cutting production more than required by OPEC’s latest agreement. However, several global banks and analysts have lowered their 2019 Brent crude oil price forecasts as strong growth in US oil supplies and uncertainties over global oil demand are expected to pressure prices this year.
EU ETS carbon rose for the second consecutive month, up 4.0% to average €23.5/t. Prices increased from the previous month following the introduction of the Market Stability Reserve which significantly reduced EUA auction volumes. However, carbon prices were pressured by periods of above seasonal normal temperatures across continental Europe which reduced demand for conventional fired power generation including coal and therefore lowered demand for EUA buying.
API 2 coal prices dropped 3.5% to average $84.4/t in January. Coal prices fell early in the month as milder temperatures across Europe and in China lowered demand for coal-fired power generation.
The month ahead: LNG supplies and gas storage keep gas supplies comfortable despite cold periods
Current forecasts expect near or slightly above seasonal normal temperatures throughout February, pressuring gas prices as demand falls. Comfortable supply margins are also pushing gas prices lower, as several LNG tankers are already scheduled to arrive at GB terminals this month. Oil prices are expected to remain near current levels in the coming month as OPEC cuts are offset by rising US production and slower than expected global economic growth.