Prices swing on outages and weather

UK gas prices have been volatile in February, unplanned outages and weather changes driving the fluctuations in the short-term market, which in turn has had a strong influence on the longer-term market, helping it to almost fully resist a slump in oil prices.

A shutdown of the Forties pipeline on the 7th February due to a valve malfunction caused an intra-day spike in short-term prices, with Within-day and Day-ahead jolting above 54 and 53 p/th respectively ─ the market sensitised to problems in the pipe following its December shutdown for crack repairs. However the issue lasted only a few hours and prices soon shunted lower again.

Day-ahead fell back below 50 p/th. But it was pushed up again on the 12th and 13th as outages in the Troll field, Entry Segal pipeline and Visund field temporarily throttled Norwegian output. The arrival of warmer and windier weather mid-February then slashed heating and generation demand for gas, causing levels to drop back to 49 p/th. On the supply side, UK indigenous production has been generally robust, notwithstanding an unscheduled outage for several days at the Bacton Seal terminal, while imports from mainland Europe through the main interconnector (IUK) ramped up again – averaging 53 mcm/day in the first half of February, compared to 32 mcm/day in the second  half of January. Imports have been helped by the perception that gas inventories in Europe are at a comfortable level – storage sites across the continent are currently 20% fuller than at this time last year.

News of a production outage at a Qatari LNG unit following a gas leak failed to have any impact, as very little LNG is expected to arrive on UK shores in the near future. UK LNG storage inventories have meanwhile fallen to their lowest level since last June. April ’18 Annual UK gas was back being discussed around 46 p/th at the time of writing, having been wagged up and down between 45.2 and 46.2 p/th over the last fortnight by the oscillations in the short-term market.

The annuals shrugged off a 10% slump in oil prices – triggered by more signs of increasing US oil production; this appeared to be partly because forward gas prices had already slumped by a similar amount in the second half of January while some of the effect of the oil tumble was offset by a strengthening dollar.

The annuals from October ’18 Annual onwards were slightly more affected, meaning their discounts to April ’18 Annual stretched wider. Oil prices have
since staged a $2.5/barrel rebound, as the dollar slipped again. Forecasts of another cold snap across the UK and Europe over the second half of February have helped push Month-ahead and Balance-of- Month prices above Day-ahead levels in recent days, although not hugely, as confidence in supply remains strong.

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