UK natural gas prices fell in February 2017, with the Apr-17 delivery contract tumbling 23% and the Summer-17 contract dropping 8% amid strong pipeline supply from the Continent, healthy LNG supply, low demand thanks to milder weather, lower U.S. natural gas prices, falling Asian LNG prices and weaker oil prices. The electricity baseload counterpart contracts followed UK natural gas prices down, with the Apr-17 losing 18% and the Summer-17 ending the month 6% lower pressured by strong UK wind turbine output, milder weather, weaker oil and carbon prices. A continued weakening of the GB pound lent some support to further out contracts, incentivising Continental traders to purchase UK energy. February saw strong falls of 20% in Asian LNG prices amid low demand and steady supplies despite loading disruptions caused by bad weather at some Australian ports. Prices shrugged off colder than average temperature forecasts in South Korea (a major LNG importer) thanks to stored reserves and returning nuclear reactors. The month-ahead Brent crude oil contract fell 2% amid a strengthening of the U.S. dollar and as increasing U.S. crude oil production outweighed efforts by OPEC to tighten global supply and support prices. U.S. crude oil inventories rose by 5%, reaching record high 520 mbbls, while the U.S. oil rig count rose by 36 to 602 rigs. Coal prices rose by 1% amid rising global demand and reduced supply, despite milder weather across North-East Asia and a weaker energy complex. China suspended imports of North Korean anthracite as part of efforts to implement UN sanctions, while continued speculation that the government will reintroduce daily limits on coal mining output offered further support to global coal prices. Carbon emission prices fell by 1%, following falling European electricity prices amid mild weather and comfortable supply margins. Last month, we predicted UK energy prices to rise early in the month and then come under pressure later in the month, falling below initial levels. This is precisely what happened, although the month-ahead contracts fell much more than expected. We foresee prices pushing higher early in March amid colder weather, weaker GB pound and stronger crude oil prices, but later coming under pressure to fall 4-6% below initial levels, although the relentless selling of the GB pound may hamper potential large falls in UK energy prices.

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