The second half of June saw real volatility in the short-term markets which fed through to Annuals. The extreme weather fluctuations and power outages gave rise to quickly changing wholesale costs. Short-term power and gas went extremely low as renewable output picked up – a combination of windy and sunny conditions meant that both wind and solar generation was strong. However, as the heat intensified in Northern Europe (with France hitting a record high) so demand for cooling rose, and more fossil fuels were burnt to meet demand. With so much more gas and coal generation, the carbon cost also spiked.

Generally, there seems to be a subtle variation in the shape of Annual price graphs for gas and power. Whereas these costs typically remain aligned due to the importance of gas in the generation mix, we have seen some divergence in recent weeks, with October ’19 power edging up whilst October ’19 gas is near 2019 lows. Extended nuclear outages may have some bearing here.

Other global drivers in the energy complex are the OPEC+ decision to extend the oil production cut. The ratifying of the decision at the recent Vienna meeting saw Brent Crude surge, as did a large US inventory draw. However, yesterday saw a sharp retraction in oil in spite of these bullish drivers as the bearish reality of a trade war-driven slowing of the global economy came more into focus.

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