All power and gas contracts along the forward curve rose in May, with some reaching multi-year highs. Prices continued to be supported by a bullish commodity market which posted fresh highs for oil and carbon.
Day-ahead gas prices climbed 9.4% to average 55.9p/th. Day-ahead gas prices dropped in early May with warmer temperatures, but later recovered as North Sea gas supplies tightened due to planned, unplanned and extended outages.
Seasonal gas contracts from winter 18 to winter 20 witnessed strong growth in May, rising 11.5% on average. The announcement of the reintroduction of US sanctions against Iran lifted oil prices during the month, permeating bullish sentiment into European gas markets, supporting GB prices.
Day-ahead power rose 6.6% to average £54.1/MWh. Rising day-ahead prices approaching summer months is an unusual trend considering seasonally warmer weather and lower demand levels. This trend was broken by a rise in gas and commodity prices, but also by periods of lower renewables generation in the month.
On average seasonal power contracts from winter 18 to winter 20 grew 10.6% across May, with contracts for winter 2018 and summer 2019 up 10.2% and 11.0% to average £59.8/MWh and £48.9/MWh respectively. Contracts were driven upwards by an increase in seasonal gas prices, but also by higher EU ETS carbon and coal prices.
Commodities react bullishly to geopolitical tensions
Brent crude oil prices leapt 7.5% to average $77.0/bl during May, rising from $71.6/bl in April. Prices have fluctuated in response to changing geopolitical tensions, with intraday prices reaching a high of $80.1/bl on 17 May, before settling at a fresh three-and-a-half year high of $79.8/bl on the day.
Prices continued to respond to concerns surrounding US sanctions against Iran, with rising expectations that Iranian crude exports will be impacted upon. Brent crude oil prices started to subside towards the end of May as OPEC suggested relaxing current production cuts to replace a potential reduction in exports from Iran and Venezuela.
API 2 coal prices rose 7.9% to average $87.3/t, up from $80.8/t the previous month. This is the highest monthly average since January this year. Despite low European coal demand in early May market demand stemmed from South-East Asia, with 10 out of the 24 South Korean nuclear power stations offline. Coal prices tracked the gains in oil prices throughout the month and rose despite lower Chinese demand amid coal import restrictions being introduced in several provinces.
EU ETS carbon prices continued with bullish momentum, rising 10.5% to average €14.7/t (up from €13.4/t). Prices hit €16.1/t on 24 May, representing a fresh near seven-year high.
The month-ahead: Potential rises in oil output could reverse upwards trends
Oil prices started to decline at the end of May, with OPEC announcing increased output in the month ahead to counter US sanctions against Iran and Venezuela, as well as rising US output forecasts from the EIA. It is possible Brent crude prices will fall in June as a consequence.
A decline in oil prices would likely feed through into gas and power markets, with many gas contracts linked to oil prices and the GB generation mix dominated by gas-fired power stations.