Geopolitical Tensions Continue To Drive Contract Prices

The UK power market continues to take direction from the equivalent gas contracts and underlying fuel contracts, therefore geopolitical tensions were also influencing and driving contract prices.

Following the extended Banking Holiday on Tuesday the UK power prompt contracts traded higher (c. £0.50/MWh) than its Friday settlement reflecting the move higher in the equivalent gas contracts, despite wind outturn meeting 10{f28ba8b7cd80e2a72e2e4b0140ea6524aee5e72b0af8287d84bbf0c79910665b} of total grid supply.

These gains were given up on Wednesday as wind generation increased further, and were reversed again on Thursday as the gas system moved from balanced to short and increases in the prompt gas contracts passed through to the equivalent power contracts.

Out of the seasonal contracts, W-14 reacted the strongest to the ongoing geopolitical situation in Eastern Ukraine, with the longer dated contracts rather sluggish to react in part due to liquidity. This reflected the movements in the equivalent UK gas contracts which have not reacted as strongly to the perceived risk of potential supply disruption.

Contrasting news of positive political talks and troop movements this week has seen the market react with alternating losses and gains (similar to those seen caused by the gas system). As we have progressed through Friday, only the W-14 contract has traded and following Obama’s dovish comments on Thursday night, the contract is close to trading back below £50.00/MWh.

Outlook

Inspired continue to recommend holding across both prompt and seasonal contracts because as gas maintenance is completed and EdF’s nuclear plants return from the outages then this should weigh on the prompt contracts.

Further out, the seasonal contracts (especially W-14) will react to the ongoing news filtering out of Eastern Ukraine and therefore could remain volatile, however as long as there are no actual supply disruptions then Inspired expect the contracts to show value closer to the point of delivery

The Risk Management Team
T: 01772 689 250