The Uk energy markets posted record lows at the start of the month in line with the heavy falls in the Chinese Yuang, which weighed on the price of Brent crude oil. Curve contracts continued a strong period of backwardation with all the fundamentals looking bearish due to weak global economic sentiment. Norwegian imports remained consistent, however an outage on the Northern continental shelf in the middle of the month cut flows but prices failed to react accordingly.
LNG send outs were consistently high for the duration with over 7 tankers arriving at UK terminals. A strong outlook for the front of the month eroded more risk premiums from all gas and power contracts across the board. As a result, gas remained the dominant fuel in the generation mix, followed by coal and nuclear' with average wind power generation levels falling considerably from the previous month.
An unseasonably cold August saw gas demand levels increase from the previous month, resulting in a tighter power supply margin. Demand increased largely due to suppliers injecting gas into Rough storage ahead of the Winter period, which was behind schedule. This resulted in greater volatility in the prompt markets as the Supply & Demand variances increased, however, near and far curve contracts fell off as this often proves to be a strong driver on the front season contract leading into the winter period.
Falling oil prices in the middle of the month was a large driver behind further market falls. Curve contracts broke resistance levels to consolidate at record lows, which in turn saw market liquidity increase. Falls in oil resulted from a worsening supply glut around the globe as major producers Saudi Arabia increased their output, despite demand Asian demand continuing to fall.
Chinese factory, manufacturing and trade data throughout the month and the end of the month was dominated by a huge crash in the Chinese stock markets. Global economies and emerging markets mirrored the downside, causing Brent to fall to record lows just above $40/bbl. Whilst the Chinese markets didn’t recover, the UK & EU markets bounced back to some extent which saw the energy contracts climb slightly on the final day of the month.
In conclusion, the UK energy markets consolidated at record lows in August and with all the market fundamentals bearish, it looks unlikely that the markets will recover anytime soon.