The market update - Nov/Dec

Power and gas prices continued to be bearish in October, despite further progression with both Brexit and China-US trade talks.

Power fell sharply in the first week, before progress between the British and Irish PM helped prices reverse any losses by mid-month. The carbon price is a significant driver of wholesale power prices, as a large volume of the UK energy mix is fossil fuel-based. With a no-deal Brexit seeming less likely, carbon certificates will still be needed for UK companies, causing the price of carbon to spike.  The market reacted to the Brexit delay with a short-lived recovery, but the existing bearish factors – high deliveries of LNG, storage levels at record highs and continued uncertainty around Brexit – have resumed as the main price drivers.

China and the USA are also entangled in a trade war. With the world’s largest economies enforcing tariffs on each other, global growth has suffered. Economic growth is closely linked with energy demand, so this has had a bearish impact on the energy market. Towards the end of October, power and gas prices were the lowest they have been since March.

National Grid and MetDesk recently released outlooks for this winter in terms of energy. LNG shipments and stored gas are expected to be more than sufficient during the colder period, with a lot of capacity to import any extra gas or power on windless days through interconnectors to Europe. MetDesk have suggested a mild and wet winter, with above-average wind output. This has further driven power and gas value down, with demand set to be lower than expected and an excess of gas meaning a comfortable energy supply.