Energy Market Brief August 2012
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Energy Market Brief August 2012

Chris Hurcombe

by Chris Hurcombe 01 August 2012

Report Summary:

Energy Market Brief August 2012

Energy Market Brief August 2012

Power and gas remain at two-year low despite rising oil – Annual wholesale gas and power prices have remained at two-year lows, despite month-ahead Brent crude oil climbing back over $100/bl. Power and gas prices fell below the low figures seen in January this year and remained at levels first seen in June on expectations of comfortable supply and lower demand.  Annual power prices rose to £48.4/MWh at the beginning of July but fell back down to a new low of £46.0/MWh on 23 July. Annual gas prices rose to 62.5p/th at the beginning of the month before dropping to a 16-month low of 59.4p/th on 23 July.

The month-ahead Brent crude oil contract reached a two-month high of $107.2/bl on 20 July. Coal prices did not follow oil upwards as oversupply continued to depress the market. Low coal prices continue to favour high coal burn and National Grid expects coal to be the favoured fuel over the winter. Carbon prices followed the wider energy market upwards and were on average 12% higher than last month.

Summer energy power slump continues

Short-term prices were also low during July but varied notably as a result of gas supply disruptions in Norway, unplanned nuclear outages and fluctuating wind speeds. Day-ahead gas swung between a two-month high of 58.4p/th and a three-month low of 53p/th.

Day-ahead electricity was affected by gas price volatility, low wind speeds and unplanned nuclear outages. The day-ahead price dropped to a two-month low of £41.7/MWh during July. Power prices have been low throughout the summer and have remained 11% below last year’s level.

Subdued outlook for energy prices

The power market is currently oversupplied keeping the annual power price roughly 20% lower than last year. This could continue over the winter unless older power stations close down. Centrica announced in its recent interim results that it was considering closing two old gas-fired plant if market conditions did not improve.

Prices could rise again if tensions in the Middle East escalate or there is another oil and gas supply disruption. But oversupply is likely to cap any increases in power prices.

Catalyst Energy Solutions’ independent approach enables clients to manage their exposure to energy price risk, while at the same time benefiting from a first-class service. Our procurement solutions make it simple: contact a member of the team on 0870 710 7560 to discuss your energy requirements.