A sharp drop in oil and carbon emission markets pressured long term gas and electricity prices downwards this month. Carbon markets had been steadily declining (after the highs witnessed in September), on the back of the growing uncertainty surrounding Brexit and the future of the UK in the EU ETS. These concerns were confounded in the Autumn Budget where the Government announced that in a ‘no deal’ Brexit scenario there would be a new carbon tax to replace the EU ETS. The uncertainty resulted in a sharp drop over the October period of nearly €10 per tonne.
Short term gas prices were fairly volatile through the month due to changeable weather conditions, however, generally the UK gas system remained oversupplied and prices dipped as a result. Temperatures were largely above seasonal norms across the continent, leading to decreased demand and allowing for increased injections into gas storage, which reduced the level of risk built into Winter 18/19 power prices. This drop filtered through to UK short term power prices which were pressured down further by strong wind generation resulting in improved supply levels.
The outlook on energy prices, as we head into Winter, is fairly mixed. The key driver for long term prices during November is likely to be the US oil export sanction on Iran which could provide some support back to oil markets. Meanwhile, short term prices are likely to find direction from any extreme weather conditions both in the UK and across the continent.
