The UK energy markets continued in a bearish trend at the start of September, taking direction from heavy oversupply due to healthy pipeline gas & LNG flows. Mild temperatures pinned demand below the seasonal norm, although this was countered by high exports to the continent via the Belgian IUK gas line. Norwegian exports through the Langeled pipeline exceeded expectations consistently, leaving additional natural gas for use in the system. An early strengthening of the GB pound following near record lows in August 2016, coupled with falls in coal and other commodities weighed on all UK natural gas and electricity contracts across the board.

Brent crude oil traded around the $48/bbl mark, but started to slide in the second week of September after the Saudi oil minister quashed hopes of a balancing of the market by suggesting that production freezes by OPEC were unlikely. High inventory gains in gasoline, distillates and crude at Cushing, Oklahoma, saw the Brent benchmark follow WTI below $45/bbl briefly. Ongoing hot weather, which saw temperatures stay above the seasonal norm kept demand in check, bringing the October-16 UK NBP natural gas contract to a record low of 29.6p/th. Consistent levels of high nuclear and wind power generation coupled with healthy LNG send outs ensured further downside across the board.

Mid-September marked the end of the bearish trend in the UK energy markets and prices began to rally as outages among UKCS and Norwegian gas terminals left the gas system heavily undersupplied. Prompt power contracts also rallied, with the Day Ahead spiking over 400% to £148/MWh as supply margins tightened due to low wind and nuclear power generation. Coal and carbon prices gained 10% and 12%, respectively throughout September 2016, contributing to the steep upside on the curve.

In the final 2 weeks of the month, the GB pound lost all ground that was built at the start of September, and closed 2.2% and 2.6% lower vs the USD and EURO respectively. News hit the markets that UK Prime Minister Theresa May will action Article 50 and begin the formal process of leaving the EU by March 2017, casting uncertainty around the nation’s economy. With Rough natural gas storage offline until March 2017, front season & underlying months reacted in line with high volatility in the prompt markets. Unexpected outages at the end of the month resulted in ongoing undersupply, casting doubt as to how Britain will cope this winter if there was a sustained period of cold weather. October-16 and November-16 natural gas contracts subsequently rallied by over 15% in the last few trading days of September.

Crude oil also supported market gains as OPEC surprised the market by agreeing to cut output by 700,000 bpd, equating to around 2% of OPEC production. Brent crude oil climbed towards the $50/bbl mark as a result, however increases in U.S. oil rigs put a ceiling on price gains in WTI crude oil.