UK gas and power prices continued their bearish run at the start of April, with oil over-supply & dampening global economic sentiment ensuring prices remained subdued. The looming potential of a BREXIT weakened the pound sterling vs a basket of currencies, putting a floor on further price falls.
April marked the beginning of the Summer supply period, and is typically a time where we see supply adjust downwards. The first week saw domestic demand reduce by some 20 mcm from the previous weeks with warmer weather. However, supply saw greater falls as Langeled, BBL and LNG send-out adjusted down in response to the changing of the season. Storage withdrawals were needed to make up for the deficit.
As we moved further into the month, a number of pipeline outages further squeezed supply keeping the NBP system undersupplied for an extended period. Crude oil prices provided additional support a week ahead of an OPEC meeting to discuss production caps, although gains were modest. In the closing days prior to the meeting traders seemed reluctant to hedge with a degree of uncertainty regarding the outcome of the meeting and the effect that might have on oil futures.
The OPEC meeting, which included some non-OPEC members such as Russia (although notably excluded Iran) took place outside of trading hours in Doha. Analysts had concluded that a production freeze would occur, although many speculated that this would do little to balance the oil market. The outcome however, proved unexpected as Saudi Arabia’s representative refused to agree to an output cut unless Iran was present and cooperated. This would have proved very bearish for the market were it not for Kuwaiti oil and gas workers striking, cutting global supply by 2.85 million barrels per day. Oil then gained further traction with IEA US crude oil stock reports showing falls.
Towards the end of the month we saw further bullish pressure, this time coming from the prompt. A cold spell combined with pipeline outages saw prices rise some 14% over a week. Unexpected outages to major nuclear and coal fired power stations which coupled with weak imports via the French interconnector, supported further rises across all power contracts. Considerable jumps in Carbon EU permit prices added further inflation to the power curve.
As weather grew milder and pipeline flows returned to normal some of that gain was eroded although the net change for April was at around +9%.