UK NBP natural gas prompt prices rose in March 2018, with the front month Apr-18 contract adding 4.2%, due to freezing weather, which led to surging demand, as well as firmer crude oil prices. However, gains were capped by high wind power generation and falling coal and Asian LNG prices, as well as a strengthening GB pound. Similarly, the Winter-18 contract increased by 6.6% amid rising crude oil, prompt UK and continental natural gas prices, despite plunging Asian LNG prices and a stronger GB pound. U.S. Henry Hub natural gas prices firmed by 2.5% amid cold weather at the start of the month, which was followed by storms hitting the Northeast of U.S., as well as lower than average storage. Asian LNG spot prices dived by 16.7% due to above average temperatures softening demand in North Asia and other major gas-consuming regions, as well as nuclear reactors restarting in Japan, limiting the need for gas for power generation, despite the earthquake in Papua New Guinea.

UK electricity baseload prompt prices ended the month higher, with the Apr-18 contract up 5.2%, amid surging carbon prices and freezing cold weather at the start of the month leading to soaring demand, alongside reduced nuclear generation, production delays in Europe, rising UK NBP natural gas and crude oil prices. Price gains were capped by falling coal prices, strong wind power generation and warmer weather towards the end of the month. The Winter-18 contract rose by 7.4% amid surging carbon prices, which jumped 31.5% over the month, as well as firmer UK NBP natural gas, European electricity and oil prices, despite falling coal prices and a stronger GB pound.

Brent crude oil May-18 contract ended the month up 6.8%, amid improving global economic and oil demand growth, alongside continued efforts by OPEC and some non-OPEC countries to cut oil supply. Saudi Arabia announced an extension of the cuts into 2019 would be needed to sufficiently tighten the oil market. Price support also came from geopolitical tensions in the Middle East, as well as the U.S. suggesting they could pull out from the Iran nuclear deal and reimpose sanctions, resulting in a 250,000 - 500,000 bpd drop in Iran’s oil exports. Oil prices were capped by rising U.S. crude oil production and inventory levels.

European coal for 2019 delivery fell 5.3% amid Indonesia capping the price of their domestic coal, lower Chinese imports and higher Chinese coal production, which rose 5.7% in the first two months of 2018, boosted by direct orders from Beijing to ensure adequate supply during the freezing cold winter. In Europe, colder weather led to higher coal usage in order to provide supply for the heightened demand.

EU carbon Dec-18 contract jumped 31.5%, rising to the highest level since 2011 during the month, due to installations in the EU's ETS buying permits ahead of a deadline at the end of March to report their emissions, as well as speculative purchasing with prices expected to rally to €35/tCO2 amid support from the European Commission. Meanwhile, the UK stated it intended to remain in the EU’s ETS until at least the end of its third phase in 2020.

The GB pound strengthened 0.8% versus the euro, making the currency one of the best performers in March, amid ongoing reduction in Brexit risks, positive labour market data, as well as still high level of inflation at 2.7%, expectations the BOE would raise UK interest rates in May to keep inflation in check and an upbeat Spring Statement.

Temperatures in March averaged 1.7°C below the seasonal normal average, while local distribution zone (LDZ) demand averaged 16.6% above the seasonal normal demand.

On 22nd March 2018, National Grid published Triads for winter 2017/18, which will be used to determine transmission charges for customers with half-hourly metering. The three Triads occurred on 11th December 2017, 5th February 2018 and 26th February 2018. This was the first time since 1999 that all three periods of peak demand were below 50 GW and fell on a Monday.

Our predictions made in the last report for March price movements were close to the actual market developments. We expected the UK NBP month ahead natural gas price to rise by 3.2% and Win-18 to firm by 3.1%, while prices increased by 4.2% and 6.6% respectively. Similarly, we forecast the UK month ahead electricity baseload contract to rise by 2.9% and Win-18 to increase by 2.3%. They finished the month up 5.2% and 7.4% respectively.

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