Energy Market Report for 21/10/11

From a procurement standpoint, prices for both electricity and gas fell again during week ending 21 October 2011, with electricity ending the week over 2.2% lower than the previous week and gas ending 2.1% down. Gas prices were nearly 4.9% lower than last month but nearly 35% higher than this time last year, with electricity 5.8% lower than last month but over 15% higher than this time last year.

Gas prices fell throughout most of the week, driven by increased Norwegian flows, a healthy LNG supply and profit taking by traders, but this trend reversed towards the end of the week as oil prices and equities rose.

Electricity prices largely followed gas prices, with early falls reflecting a fall in coal, gas and oil prices, despite the loss of two nuclear reactors over the weekend, and a subsequent recovery on Friday in response to better macroeconomic data and a strengthening fuels complex.

Price trends continue to show a mixed picture, with 2012 electricity prices reaching their lowest point since February 2011, but with gas prices remaining strong. Concerns about the stability of the Eurozone continue to exert downwards pressure on prices, however there is now greater confidence about Europe's ability to resolve this crisis, and with very strong manufacturing data from China, macroeconomic concerns are starting to ease.

In the meantime, gas demand from the Far East remains high, and with wholesale prices there attracting a significant premium over the UK price , supplies continue to be diverted eastwards, giving cause for concern about the adequacy of our gas supply this winter, despite currently high gas storage levels. Oil prices appear to have stabilised at around $110 / bbl on the back of improved economic trends. Clients are advised to monitor the position very carefully, as continued economic optimism coupled with a cold winter and gas supply concerns could cause prices to rise sharply over the weeks to come.

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