Tuesday 20 December 2016

Temperature rise drives prices – Y Report

Temperature rise drives prices – Y Report

Temperature is going to be key in driving prices this week, according to Inenco’s Y Report.

Revised forecasts of warmer weather mean demand is likely to fall slightly in the near future.

On top of this, 3.5GW of French nuclear capacity is expected to come back online this week, which is likely to see export demand to France from the UK fall.

In terms of gas, Rough Storage has come back online and the UK is able to withdraw but there's still a lot of uncertainty with regards to having access to consistent volumes going forwards.

Christmas is likely to see market liquidity dry up as the number of active traders shrinks over the festive season.

Short term supply and demand fundamentals are looking to improve this week due to French exports falling and predictions of wind generation rising up to 7.5GW later in the week.

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This is likely to widen supply margins and drive day ahead prices lower.

Energy Trader Dorian Lucas said: "In terms of fixed price contracts, the recommendation's going to be to hold over the coming weeks unless you're able to pull the trigger as soon as possible. The reason the recommendation is to hold is that we're expecting liquidity to dry up and the bid-offer spread is going to go quite wide.

"If you do go to market during these next couple of weeks, you're likely to secure a much higher market value price based on the fact that the buyer and seller aren't as narrow as you'd expect them to be."

He added that investors with flexible contracts should have a reasonable hedge in place for Q1. When looking out further, the market is trending higher so Mr Lucas advises that hedges reflect this.

Written by

Bruna Pinhoni

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