Unprecedented volatility within the forward power market

This week began in line with recent trends. We witnessed another increase in gas prices on Monday, due to a combination of pipeline maintenance, higher LNG prices in Asia (resulting in a lack of inbound supply), low storage levels and a reduced pipeline supply. These factors resulted in another record breaking price of 98.20p/therm. With higher gas prices, a boost for both carbon prices and power prices followed. On Tuesday, Winter Baseload 21 began trading at £99.80/MWh with the expectation that this would break through the £100/MWh mark. However, despite all technical analysis suggesting a bullish market, there was a major sell off across the board. Winter 21 Baseload power prices fell 8.1% on Tuesday alone, whilst the EUA’s carbon price fell 12% by Wednesday. These were driven by gas prices plummeting, with front month prices dropping 15% by close of play on Wednesday as well.

As mentioned, there are seemingly no technical drivers for this price plummet, instead it is sentiment, investor driven. There have been suggestions that the LNG picture could be improving in the UK soon whilst others have speculated that the USA may withdraw their threat of sanctions on the Nord Stream 2 pipeline, both of which would lead to increases in supply of gas, but, neither of these are confirmed. In what has already been a remarkable year in the forward market, this may have been the most remarkable and unpredictable couple of days yet. Coming to the end of the week there has been a slight rebound of these prices but they are still considerably below last week’s benchmark.