After a quiet start to the month, short term UK power prices turned volatile following changeable weather conditions as wind generation swung from lows of 1GW to highs of 12GW. Short term UK gas prices also fluctuated as a mild start to the year was closely followed by a prolonged cold snap, helping to push demand to 40% above seasonal norms. However, the latter half of the month saw gas prices take a downward turn in light of plentiful supply and low demand levels, while mixed wind generation forecasts continued to support power prices.
Current weather forecasts suggest Europe is set to turn colder over the next few weeks with wind levels remaining below average for the time of year. This is likely to provide support to short-term UK energy prices, however, with gas storage sites in Europe at 70% capacity (9% higher than they were in Jan ’18), we are unlikely to see prices spikes similar to those witnessed in recent winters.
Longer term UK energy prices were largely driven by a slump in oil markets throughout most of December. Oil prices initially found support following the OPEC meeting in Vienna where 2019 oil production cuts were eventually agreed. However, the rise was short-lived as prices proceeded to crash from $80/barrel to $50/barrel on the back of fears of a global economic slowdown and rising US oil output. There are already signs that production cuts coming into place this month will provide some support back to oil markets, which will likely impact on long-term UK energy prices.
