Compared to other seasons, summer is traditionally a less volatile and less expensive period for energy commodities. But this summer has seen unseasonal gains.
For example, Day Ahead gas prices increased to above 90p/therm during July – something never before seen during a summer month.
Power prices followed the upward trend, with the N2EX Day Ahead Index out turning as high as £107.54/MWh on 26 July.
We've also seen high levels of volatility in single days, with the market reacting strongly to events such as:
The start of Russian gas pipeline maintenance (up)
The end of Norwegian pipeline maintenance (down)
Hopes of forthcoming supplies to bolster the UK’s extremely low gas storage (down)
Some nuclear plants announcing they will undergo maintenance during Q4 2021, when margins are usually already tight (up)
Gas prices rise
But overall, unplanned outages in some Norwegian gas fields and ongoing low storage levels pushed gas prices up, with sizeable gains in the Winter 21 contract which rallied from 95.45p/th to 103.29p/th over the month of July.
Power follows suit
This had a knock-on effect on power prices, along with low wind generation and a rise in temperatures, which creates increased demand for cooling.
The move higher was further exasperated by a lack of liquidity, which saw Winter 21 baseload close July as high as £103/MWh.
Smaller rises for oil
Oil prices were also on the rise, with higher demand and low storage levels increasing demand.
But concerns about a delay to the economic recovery by the fast-spreading Delta variant of the Coronavirus created some downward pressure. So the overall monthly rise for oil prices during July was just 1%.
As hopes of a global recovery continue, we expect further changes to economic indicators that are likely to impact prices. For example, more competition for energy commodities as manufacturing production increases around the world.
A heatwave in mainland Europe during August could also increase demand for power, especially in countries that rely on air-conditioning.
Take action to manage uncertainty
For UK businesses, this all adds to increased uncertainly when it comes to buying energy and managing flexible-purchasing contracts.
For help and guidance – or to revise your energy-buying strategy – do contact your Client Lead or Client Portfolio Manager (existing customers). Or drop us an email to nBS@npower.com.
Our team of market experts are always happy to share risk management insight and market knowledge
1 National Balancing Point
As Manager of npower’s award-winning Optimisation Desk, Gemma oversees the energy trading support, market intelligence and risk management expertise provided to customers who purchase energy via flexible contracts. She joined the desk in 2013 as a Senior Client Portfolio Manager, following three years working on the Shift Trading desk at EDF Energy. Prior to this, she worked for British Energy. Gemma has a Masters in Forensic Analysis and a degree in Biological and Medicinal Chemistry.