UK Gas & Power: Bullish Bounce Followed by Sideways Trading

VP Trading, Fanos Shiamishis, reports on energy market activity, covering the period 25th June – 1st July 2024. On our end-of-day pricing tool, The Source, we published an in-week high of £89.48/MWh for the Winter-24 seasonal power price on 25th June. In this blog, Fanos shares the market news and updates from the last week. 

Last week started with a bearish outlook for the UK gas and power market. However, the sentiment shifted dramatically by midday on Tuesday, with buying interest across all power periods and front-month gas leading to daily gains. Notably, spark spreads (profit margin between power and gas) on the Winter-24 contract widened, with power prices increasing by roughly £1.40.

Wednesday saw a return to bearishness for European gas as ample storage and strong Norwegian pipeline flows put downward pressure on prices. A technical glitch between EPEX and Nordpool exchanges caused significant price discrepancies, leading to millions in unexpected gains and losses for some market participants. The UK power market followed the bearish trend in gas and carbon, with July-24 baseload being the most traded product due to its approaching expiry.

Thursday witnessed a reversal of fortunes. Despite bearish opening forward prices mirroring the EUA and UKA markets, the trend shifted sharply in the afternoon. Sustained buying interest, including late bids on Winter-24 power, suggested potential "rolling over" of positions from the expiring July-24 contract to August. This buying activity also strengthened spark spreads, though to a lesser extent for Winter-24 compared to the front month.

Friday concluded the week with European gas trading sideways. While near-term supply remained comfortable, potential disruptions like rising Asian LNG demand, hurricane threats to US LNG terminals, and upcoming Norwegian maintenance work kept market participants on edge. The July-24 physical baseload contract saw healthy trading volume, with positions rolling over to the August-24 contract for the upcoming week.

The new week began with prices easing off after initial gains on Monday. A short UK gas system in the morning added a temporary pressure point. Cooling demand in Asia put downward pressure on LNG prices, further impacting the market. While Norwegian gas flow dipped slightly and Ukrainian gas transit remained stable, strong wind generation later in the week is expected. Overall, trading activity on the UK power curve was limited, with significant volume focused on Winter-24 spark spreads, including clean spark spreads (profit after accounting for carbon costs).