March sees return to falls in commodities
Changes in the price of oil, combined with falling global demand levels, impacted coal prices, which dropped 4.9% over March and hit a five-year low of $56.9/t. In February, UK spot prices were bullish as outages in Norway increased supply concerns.
Brent crude oil saw month-on-month increases for the first time in eight months in February as a number of US oil rigs were taken offline and new commercial crude reserve regulations were introduced in China, which boosted short-term import demand. Oil prices dropped 2% to average $57.4/bl as concerns increased that US storage levels were reaching full capacity. But Brent, as well as coal and carbon prices, returned to their downward trends in March.
Changes in the price of oil, combined with falling global demand levels, impacted coal prices, which dropped 4.9% over March and hit a five-year low of $56.9/t.
In February, UK spot prices were bullish as outages in Norway increased supply concerns. Day-ahead gas increased 9.5%, to average 50.7p/th over the month. Day-ahead power rose 8.1% to average £42.8/MWh as the gains in gas fed through, and the French interconnector switched between importing and exporting due to temperatures below seasonal norms in France.
However March falls in commodity prices fed through to GB power and gas contracts over the month. Overall, seasonal gas contracts averaged falls of 4.1%, with the winter 15 contract dropping 3% to 50.9p/th. Gas contracts also dropped, as continental deliveries picked up after outages over February. Power contracts followed the gas market lower, as the winter 15 power contract fell 2.7% to £46.7/MWh. The annual April 15 contract finished trading at £45.7/MWh, 13% below its level a year earlier. The carbon market was bearish, with prices dropping 7% to average €6.8/t, as talks on proposed changes to the EU Emissions Trading Scheme slowed. Prices hit a five-month low of €6.3/t in March.
However, at the end of March prices rose, as news of capacity closures and storage outages led to supply fears for the months ahead. Scottish Power announced that its Longannet coal-fired station would likely close by March 2016, having missed out on a National Grid contract. This followed E.ON UK’s confirmation on 19 March that its 900MW Killingholme plant would no longer be available to generate in the UK energy market. These moves towards the closure of conventional plant may put further pressure on capacity margins and push power prices higher for next winter.
Repairs for Rough storage, on top of closures at the Hornsea gas storage plant, have led to fears of reduced storage capacity going into next winter. Gas prices rose in the last week of March following these announcements, and the market is expected to be bullish going into the summer injection season.