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BY: CHRIS BARRETT  – CARBON STRATEGY GROUP

A quick word about the energy markets

Over the past month prices have been very volatile as we have finally begun to see the impact of warmer summer weather conditions after an extended cold spring. Normally, gas surpluses  occurring in spring are diverted to storage in anticipation of next winter. The cold spring meant demand exceeded seasonal norms and as a result gas stocks in the UK area are at a 4 year low  causing anxiety in the market and driving price up through May. This has been supported by poor wind output, falling LNG deliveries and the usual seasonal maintenance of Norwegian gas  infrastructure.

However, June has finally seen the return of warmer weather and we have also seen the arrival of the new UK Emissions trading Scheme (UKETS) which is replacing the European ETS. After a volatile start, currently UK Carbon prices have fallen along with its EU equivalent giving some respite to the energy market. As a result, we have seen a more bearish market in the first week of  June.

Future view
Despite coronavirus continuing to cause concerns on the global stage, oil prices have been rallying as confidence is growing that demand is recovering. Also, the growing pressure on governments  to take action against climate change is likely to impact carbon prices which, despite the current lull, are expected to continue to rise – all pointing to continued upward momentum in energy  prices However, on a positive note the US have decided not to place sanctions on the Nordstream 2 pipeline from Russia which, if finished this year, should improve gas supplies to Europe.

Finally, there is the matter of sentiment. The energy market is a true market with traders playing a significant role in setting prices based on their forward view of the fundamentals. At any one  point it is possible that the market can be over or under valued. Whilst we are in unprecedented times and therefore, we cannot tell what the future holds, the market is currently at a historic high  and therefore traders may deem it time to cash in, which would send markets down.

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