Energy Market Risk Analysis – early January 2012

Prices hit 20-month low

The price downtrend has continued on UK gas and power prices, with April Annual ’12 starting the year by slumping beneath £46/MWh, a 20-month low. Confirmation that last year was the second warmest on record has reinforced expectations of continuing mild weather while gloomy economic predictions for the year ahead have also helped pressure the market.

Other annuals have also eased, although by slightly less, and are now all at their lowest level in at least a year – October ’12 Annual under £49/MWh, while the furthest talked annual, April ’14 Annual, is around £54/MWh. Softening gas prices in the face of growing supply optimism have been a major contributor to the UK power weakness.

UK gas prices are lower across all periods, and have started 2012 on a bearish note, as a “comfortable” supply outlook has continued to weigh on discussion. This has happened even though there have been several production issues and oil prices have risen.

April Annual ‘12 has slipped beneath 60 p/th for the first time since last February, while October ’12 Annual has dropped towards 62 p/th. Summer ’12 has been the most pressured season – shedding almost 6% since mid-December, partly on expectations that replenishment buying for storage sites may be lower than normal if the mild weather continues.

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Energy price shift between 16 December 2011 and 03 January 2012

Elec: -3.76%

Gas: -4.01%

Coal: +2.96%

Oil: +4.34%
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