Energy Market Risk Analysis – mid December 2011

Q1 and Summer at parity

Prices for Q1 ’12 have dropped to be valued at parity with Summer ’12 prices for the first time, their premium disappearing as any residual Winter supply fears have further evaporated. They are both now valued at just beneath £45/MWh, also in line with Day-ahead prices.

Q1 has come under particular pressure in recent weeks due to growing expectations that the winter will continue to be mild, that the current healthy cushion of spare power supply will be added to as new gas-fired capacity comes onstream, and that LNG (liquefied natural gas) imports will soon increase.

The three-month downtrend in longer term gas prices hit a snag in the second week of December, as economic optimism following a cut in European interest rates provided a general lift to financial and energy markets and colder weather kicked in. A rally in oil prices, amid rumours of Iranian military manouevres in the Straits of Hormuz also contributed, although the rumours were quickly scotched.

Disunity at the EU summit also reagitated Eurozone fears, helping set the market back on its downwards path. As a result, April Annual ’12 has slipped beneath 62.5 p/th, its lowest level since February.

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Energy price shift between 01 December 2011 and 16 December 2011

Elec: -0.93%

Gas: -0.06%

Coal: -2.43%

Oil: -2.6%
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