UK energy markets rocked by geopolitical volatility

The UK’s gas and power markets surged between 2-3 per cent in a matter of hours Monday afternoon before slumping back again by Tuesday morning as concern over mounting tensions in the Russia-Ukraine region sparked greater market volatility.

The market price for gas and power this winter rallied to highs not seen since May in what traders described as an “aggressive correction” in market position. But gains proved short-lived as bearish fundamentals brought prices back to earth on Tuesday morning.

“The reason for the gains is still a bit tenuous,” one trader said, but added that the market is “very nervous” over possible gas supply interruption from Russia, and susceptible to strong upwards moves.

Over recent months the market price for gas has repeatedly set new multi-year lows under pressure from ample available gas storage and increased liquefied natural gas (LNG) deliveries.

This trend was at play over Monday morning’s trading session with gas for delivery this winter slipping down 1.52 pence to 59.48 pence per therm from an opening price of 60.10 p/th. But by late morning the market changed direction climbing steadily to pricing levels 3% higher than intraday lows.

An analyst from price reporting agency Platts confirmed that Monday’s close of 61.65 p/th for gas delivered this winter represents a 2.2% premium day-on-day, and is almost 12.5% higher than its lowest ever price seen 10 June.

Wholesale power prices for the winter tracked the same trend, rising over 2% from Friday’s close to GBP50.55/MWh at the end of Monday, its highest close since May 12, Platts’ data showed.

As equilebrium returned on Tuesday morning, thanks to LNG deliveries and low demand, traders told Utility Week they are neverthless braced for further potential volatility over the rest of the day and in the weeks ahead.