UK natural gas prompt delivery prices fell in May amid warmer weather, lower-than-usual demand, falling crude oil prices, weak U.S. natural gas prices and plummeting Asian LNG prices. Temperatures in UK surged 6.6 °C above the normal by the end of the month, pulling LDZ demand 31% below the average for this time of year. Total LDZ demand for the month was 3.9% below the normal monthly demand. Further dated contracts rose as the GB pound lost 3.5% against the euro. Winter-17 contract rose 0.1% while Summer-18 rose by 1.2%. Asian LNG prices plummeted by 6% as demand weakened from major gas-consuming regions, while Australian and Algerian production increased. UK electricity baseload prices lifted, with the Jun-17 contract gaining 2.5% and the Winter-17 ending the month 1.3% higher amid poor UK wind turbine output, rising European electricity prices, surging carbon prices and a weaker GB pound. UK solar output broke records in May, with output reaching 8.7 GW on 26 May, making up 24.3% of the UK’s total electricity output. The UK Prime Minister pledged to cap household energy prices if she is re-elected on 8th June, which would be the biggest market intervention since the sector was privatised 30 years ago. The month-ahead Brent crude oil contract fell 2.3% amid disappointment surrounding the outcome of OPEC-led producer talks, which resulted in an extension to existing cuts. U.S. drillers added 25 oil rigs in May, while total U.S. crude oil stocks fell by 17.9 mbbls. Coal prices fell by 0.2% as Chinese demand waned and as the Chinese government discussed curbing low-quality imports. Carbon emission prices rallied 9%, following rising European electricity prices and high demand, despite emissions regulated under Europe's carbon market falling by 2.7% in 2016. Last month, we predicted UK energy prices to fall early in the month and then rise as the month progressed. Our predictions for the direction of UK natural gas month ahead prices (lower) were correct, however Winter-17 prices recovered slightly higher than our predicted range. Regarding electricity, our forecast came lower than the final price at the end of May. Although prices followed the trend we expected, our predicted price outturn fell short of the actual prices with the month-ahead price ending 7.7% higher than predicted, while Winter-17 settled 3.3% above expectations.
To download a full copy of the report click here