UK natural gas prices fell in March 2017, with the May-17 contract falling 10% and the Winter-17 contract falling 5% amid healthy LNG supply throughout the month, high gas flows from Norway, low consumption due to mild temperatures and strong wind turbine output. Further weight came from a 1.1% strengthening of the GB pound against the euro, falling crude oil and global LNG prices. The electricity baseload counterpart contracts followed UK natural gas and European electricity prices down, with the May-17 contract shedding 9% thanks to high UK wind turbine output, lower global coal and European carbon prices. Asian LNG prices fell 8% with healthy supply and subdued demand from Asia and Europe, despite bad weather at some Australian ports. The month-ahead Brent crude oil contract fell 6% amid bulging U.S. inventories and increased U.S. drilling activity, despite weaker U.S. dollar, high OPEC supply cut compliance and reduced oil supply from Libya. U.S. crude oil inventories rose by 2.7%, reaching new record of 534 mbbls, while the U.S. oil rig count rose by 53 to 662 rigs. Coal prices fell 1.5% amid tepid demand from Europe and speculation that the Chinese government may relax production limits on domestic coal mines. However coking coal rallied late in the month after damage from tropical cyclone Debbie hit shipments from Australia, the world’s biggest shipper. Carbon emission prices tumbled over 20% following European electricity and coal prices down. Meanwhile UK’s emissions dropped last year by 6% to 466 million tonnes of CO2e, compared to 2015. The drop was a result of continued decline in coal-fired power generation. Last month, we predicted UK energy prices would rise early in the month and then fall off towards the end of the month, losing 4-6% from initial prices. This is what happened, with price falls towards the higher end of predictions (3-12%). We foresee prices following similar pattern in April, when early price rises could be followed by late price falls, although we do not expect prices to fall too far below their initial levels, likely no lower than 2-3%, supported by rising crude oil, stronger global coal prices and weak GB pound following the official launch of the Brexit process by triggering Article 50 on 29 March 2017.
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