Power prices fall: Movements in the underlying fuels complex

Power prices have once again continued to fall last week following movements in the underlying fuels complex. Weak demand and an oversupplied gas system was the main driver.

Gas flows from Russia have been reported to be running as normal despite an explosion to one of the transit pipelines. The positive news has seen the some of the supply risk premium dissipate from the front season where a fall in flows would optimally influence. High gas storage stocks across Europe will limit any price increases to the front months should the gas flows stop in the near future.

Further falls on the curve are being limited by bullish Oil and Carbon prices. Oil is currently at a 9 month high and traded just below $116/bbl this morning, due to militants seizing control of two Iraqi cities, stoking fears of oil supplies being cut, and the US saying it would not rule out military intervention. Carbon (allowances that generators need to purchase and are factored into power prices) have risen 10{f28ba8b7cd80e2a72e2e4b0140ea6524aee5e72b0af8287d84bbf0c79910665b} since the start of the month due to optimism that the EU will advance plans to scale back auction volumes in times of market surplus. However these rises have been offset as the Sterling remains firm against the euro/dollar after the euro zone changed its fiscal stance to cut debt.

Outlook

An improved weather outlook over the next couple of weeks should keep a check on spot and nearer delivery dated contracts.

Further along the curve could see further falls if Oil supply fears die down.

The Risk Management Team
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