The market update - October

August has been a particularly low liquidity month for UK power and gas contracts – less trades are being executed than would normally be expected for this time of year. This is largely due to a seasonal lull in trading activity as traders wait for a clearer picture of upcoming trends to emerge, but also down to reduced buying interest.

Gas storage sites across Europe are reaching capacity, so injection demand is lower than usual for the months running up to the winter period. This has led to further weakness on contracts delivering this year. Winter contracts have taken the biggest hit, with the winter-19 (1st October 2019 - 31st March 2020) gas contract dropping by 8%. Power markets have followed suit with a 6% drop, currently trading at levels not seen since May 2018.

Looking ahead to Summer 2020 (1st April 2020 – 30th September 2020) and beyond markets have also softened, but to a lesser extent. These contracts are still holding above the lows we saw in March this year.

Prices of the most relevant commodities (Carbon/Coal/Oil) have all dropped in tandem this month as fears of an imminent global recession mount. The escalating trade war between the US & China, Brexit uncertainty and poor economic performance in the EU (Germany in particular) have all raised concerns.