The majority of power contracts along the forward curve increased in July, supported by an underlying rise in commodity prices. In contrast, gas contracts experienced mixed movements.
In July, day-ahead gas gained 3.4% to average 36.2p/th, halting a five-month downward trend as maintenance at both a major gas processing plant in Norway and on the UK Continental Shelf limited supplies. Month-ahead gas fell 2.2% to average 36.3p/th.
Seasonal gas prices lifted 0.4% on average. Winter 17 gas slipped 1.0% to 44.9p/th, and summer 18 gas moved 1.0% lower to 38.9p/th. In contrast, all gas contracts beyond summer 18 rose.
Day-ahead baseload power gained 8.1% to average £42.9/MWh, the contract’s highest monthly average in five months, due to outages at a number of nuclear plants and higher spot gas prices. The month-ahead contract rose 0.7% to £39.3/MWh.
Most seasonal baseload power contracts moved higher and on average increased by 0.9%. Winter 17 power was unchanged, but summer 18 power lifted 0.5% to £39.7/MWh.
Oil reaches two-month high, coal hits eight-month high
Brent crude oil prices climbed 2.4% to average $48.9/bl in July. Prices ended the month at a two-month high of $52.5/bl.
Prices were supported by falling US crude inventories, which decreased every week last month, and high demand forecasts for China and the US. Furthermore, Saudi Arabia pledged to cap crude exports at 6.6mn bl/d during August and Nigeria said it would cap oil production once it stabilises at 1.8mn bl/d. Prices did face some downward pressure in the month. OPEC crude production hit a 2017 high in July, as Libyan output continued to recover. Production from Iraq, UAE, Gabon and Ecuador also increased. These increases in supply meant OPEC only met 84% of its production cut target in July.
On average, API 2 coal prices jumped 5.8% to $72.5/t during the month. On 31 July, prices reached an eight-month high of $75.8/t. Coal prices were supported by high demand from China and supply disruptions.
EU ETS carbon prices gained 5.2% to average €5.2/t, following a series of strong auctions. On 10 July prices hit a four-month high of €5.5/t.
The month-ahead: Low demand set for August, but tighter margins forecast for September
National Grid’s Summer Outlook report, published in April, expects power demand levels in August to be lower than the same month last year, with comfortable levels of available generation. In contrast, parts of September are forecast to see tighter power supply margins owing to power plant maintenance, including a 1GW reduction in interconnector availability, and rising demand levels. Therefore, power prices in August are likely to be relatively stable, but volatility could pick up in September.