UK Energy Pricing Trends - 21 May 2021

UK Power Pricing Trends | 21 May 2021

UK power prices moved substantially lower last week, both at the short and long end of the price curve. Central to the fall in prices was the UK ETS, which was about as disruptive as anyone could have foreseen; both before and after going live on Wednesday. EUA and natural gas prices plummeted in midweek amid the UK ETS buzz, ultimately dragging UK power prices lower. Additional price pressure was provided by bearish financial market sentiment and a significant drop in oil prices. Peculiarly, UK spot power prices recorded the largest weekly drop, despite a notable week-on-week fall in renewable generation and lower Norway-to-UK gas flows.

UK Natural Gas Pricing Trends | 21 May 2021

Carbon’s influence over UK gas prices was demonstrated last week when the first weekly drop in EUA prices since late March, and the largest since January, spurred significant declines across the curve, all whilst gas supply concerns intensified. Prices dropped even as continued outages at Norwegian gas fields saw flows into the UK fall for yet another week and LNG imports slumped to the lowest level since late February. Arguably offsetting the concerning supply-side picture, aside from carbon, was the demand outlook, with average temperatures rising by 1⁄3 week-on-week, trimming gas demand for heating requirements by 30%. UK gas prices did offer a moderate rebound into the weekend as the supply issues retuned to the forefront of the gas market conversation, but prices still closed the week firmly in the red.

UK Energy Complex | 21 May 2021

Ahead of the inaugural UK ETS auction, the European energy market was already reacting. EUA prices slumped 6% on Tuesday as UK emitters unwound EUA positions in preparation for Wednesday – on which UKAs would be available both at auction and via the futures market – while profit-taking applied further pressure to EUA prices. EUAs tumbled lower throughout Wednesday as the first UK ETS auction settled at a fairly modest price of £43.99 (€51/tonne) and financial market sentiment turned bearish amid renewed inflation concerns. Caught up in the inflation debate was Brent, which fell amid the risk-off mood which characterised financial markets in midweek, with further losses posted later in the week as the market looked ahead to a potential lifting of sanctions on crude-producing Iran. Some losses were pared into the weekend as the mood on financial markets improved and U.S. industrial data pointed to a strong oil demand outlook.

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