June 2022 Business Energy Market Brief and Wholesale Energy Prices

June 2022 Energy Market BriefThe Story of Two Halves as Energy Prices Take Direction

June22 energy report

Annual Gas Prices

Annual Gas Prices - Jun22

Annual Power Prices

Annual Power Prices - Jun22

In May, near-term wholesale gas prices declined – most evident across the day-ahead and front-month contracts. However, further out on the forward curve we observed seasonal contracts from winter 23 to winter 24 increase, a likely response to the continuation of risk premiums being baked into future gas delivery, with on-going uncertainty surrounding the future of Russian gas supply.

On average, seasonal gas contracts from winter 22 to winter 24 were 3.7% higher in May than in the previous month. The majority of these seasonal contracts continued to climb as the month matured too.
If we look closer at near-term gas prices across May, there were some evident bearish factors which brought down pricing levels. Firstly, warmer weather trends continued into May from what was already a warm April against seasonal averages, suppressing heating demand in-turn. Similarly, the UK saw an increased volume of LNG cargoes reach GB terminals in the month, subsequently raising domestic LNG send-out and softening the supply demand balance in the short-term.

In support of these bearish movements, the day-ahead gas contract fell 47.8% lower in May – to average 98.67p/th. Similarly, both front month contracts were down an average of 21.9% on the previous month, to sit at 155.31p/th and 178.82p/th respectively.

Gas price losses also impacted the power market too, with most counterpart contracts mirroring gas price movements.

Elsewhere, day-ahead power prices eased 32.6% in May, to average £121.80/MWh, but remained 59.4% higher than the same period of 2021. Seasonal power contracts like their gas counterparts largely increased. Subsequently, seasonal power contracts from winter 22 to winter 24 lifted 8.1% on average compared with April.

Primarily, the strong downward momentum on near-term domestic gas prices set a price direction for power prices to follow, coupled with periods of elevated wind outturn across parts of month softening supply margins slightly.

Front-month power contracts shared the descending price direction of their gas counterpart contracts and day-ahead power prices, subsequently falling 12.4% on average to sit at £168.35/MWh and £185.57/MWh, respectively.

International commodity markets enjoyed a bullish month of price direction in May. For carbon, both the UK and EU ETS schemes recorded growth, with UK ETS prices up 7.4% on the month prior to average £83.50/t, with the EU ETS up 7.8% to average €86.08/t. Elsewhere, Brent crude oil lifted 6.1% to average $111.95/bl – buoyed by globally tight supply markets and EU threats of Russian oil export bans.

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