UK NBP natural gas prices rose in November, with the front month Dec-17 contract jumping 11.8% and the Summer-18 contract rising 3.9% amid higher UK gas-for-power demand due to colder winter weather and nuclear reactor outages in France and UK, tight system caused by multiple UKCS gas production outages, rising crude oil and Asian LNG prices, as well as a weaker GB pound versus the euro. Asian LNG prices rose by 9.4% due to higher winter demand from China, South Korea, Japan, Egypt and Spain, as well as tight supply due to production outages at three major Australian projects. U.S. Henry Hub natural gas prices added 4.5% amid rising heating demand due to colder weather, increasing U.S. LNG exports and falling U.S. gas storage. Prices were capped by rising natural gas imports to the UK via the IUK pipeline from Belgium and rising UK LNG send-outs, which were up 38% since October amid the arrival of two LNG tankers.

UK electricity baseload prompt prices ended the month higher, with the Dec-17 contract up 4.5%, amid rising demand due to cold weather, lower wind power production, extended nuclear reactor outages in France and UK, surging UK NBP natural gas prompt prices, rising carbon prices and a weaker GB pound versus the euro. Curve prices also closed higher, with the Summer-18 contract up 2.6%, amid firmer UK NBP natural gas prices and higher crude oil and carbon prices, as well as a weaker GB pound versus the euro.

The Brent crude oil month-ahead Jan-18 contract ended up 3.6%, hitting the highest level since June 2015 at the start of the month, amid rising global demand and tightening supply as OPEC's adherence to their pledged supply curbs rose to 92%, as major OPEC exporters and Russia agreed to extend the 1.8 mbpd oil output cuts until the end of 2018 and as the 590,000 bpd U.S. Keystone pipeline shut down after a spillage.

European coal for 2018 delivery fell 2% due to concerns about a slowing Chinese economy rattling investors early in the month, as well as news there were 20 countries and 2 U.S. states which joined an international alliance with a plan to phase out coal from power generation before 2030. Price support was provided by China’s imports rising 3.6% from October.

EU carbon Dec-17 contract increased 2.2% due to higher buying interest, strong auction results, agreement on the future shape of Europe’s carbon market after 2020 and rising crude oil prices. On 9 November, EU policy makers agreed the EU ETS phase IV rules, with the key component the doubling of the MSR withdrawal rate to 24% between 2019 and 2023.

On Wednesday 22 November, Chancellor Phillip Hammond presented the UK government’s Autumn Budget. While the Budget delivered sharp cuts to both UK productivity and economic growth forecasts during the next five years, it also promised new money to support a shift to electric vehicles, announced a moratorium on new support for low-carbon electricity, promised to maintain a UK carbon price at current levels, froze fuel duty yet again and offered beneficial tax changes to the North Sea oil and gas sector. Read more on the implications of this on page 5 of the attached report.

Our predictions made in the last report for November’s price movements were correct and very similar to the actual outturn. We predicted the month ahead UK NBP natural gas price to rise by 7.7% and Sum-18 to rise by 4.6%, while prices rose by 11.8% and 3.9% respectively. We forecast the UK month ahead electricity baseload contract to rise by 4% and Sum-18 to rise by 2.7%. They finished the month up 4.5% and up 2.6% respectively. Brent crude oil settled up 3.6% on the month, in line with our predictions of a 1.5% increase, while the GB pound versus the euro fell 0.4%, also similar to our expectations of a 0.2% fall.

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