1) What’s happening in the markets and why?
This week UK energy policy has dominated headlines with the government announcing yesterday the need to build new gas plants beyond 2030 to improve energy security otherwise the UK faces the risk of blackouts. The Department for Energy Security and Net Zero (DESNZ) also said it is considering zonal electricity pricing that would mean consumers were charged depending on where they are based. The announcements are part of a consultation into the Review of Electricity Market Arrangements (REMA) launched in 2022 to reform the electricity market.
Turning our attentions back to wholesale markets, the UK gas and power markets have retreated from last week’s highs with weather forecasts remaining mild and storages full, leaving the market seeking a new direction. Both Europe and the UK are expecting temperatures above seasonal norms for the rest of March against a backdrop of weaker demand. On the supply side Norwegian flows continue to remain strong, LNG cargoes continue to arrive to Europe and storage levels remain at historical highs of 60%. Although geopolitical risk has not disappeared, in absence of other upside risks, the market appears to be looking for a clear direction with prices flattening out yesterday afternoon and this morning.
2) What should energy buyers look out for?
Energy buyers should continue to keep a close eye on the fundamental drivers. With prices close to recent lows any upside risk will move prices adversely. In particular, changes to the weather forecast, unplanned or extended maintenance and shifts in global LNG markets.
3) What would you recommend?
Depending on your cover levels, taking some volume now still represents good value. However, if you have already taken a significant amount of cover and are comfortable you may want to hold off closer to delivery to try and capture extra value.
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