Cold start to September leads to wholesale price increase

Icicles on a pipe pipelineDay-ahead, week-ahead and month-ahead gas prices have all increased, and the threat of more hard weather looms for UK  businesses.

Wholesale natural gas prices increased yesterday as a frosty start to September boosted demand. Meanwhile supplies of liquefied natural gas (LNG) fell and anticipated Norwegian flows dropped for the coming week.

After a record breaking summer of above average heat, Brits have been brought back to earth in September, as below normal temperatures led to higher demand and higher prices for natural gas.

Higher day-ahead gas rates at the start of September

Yesterday, prices for immediate delivery were trading 0.35 pence higher at 38.60 per therm at the start of the working day. Meanwhile day-ahead prices for Wednesday had increased by more than double, trading 0.90 pence higher at 39.15 pence/therm.

By the end of the trading day though, day-ahead rates had jumped by more than five percent to 40.20 pence per therm.

The National Grid showed that the British gas system was oversupplied by 9.6 mcm on Tuesday morning due to higher flows from Norway via the Langeled pipeline. However, these flows are expected to dip next week when maintenance ends at Germany;s receiving terminal in Emden on Sept 5th.

Cold weather prompts gas price rises into the winter

The cold weather snap has also affected week-ahead and month-ahead rates. Prices for delivery on working days next week were up by about 5.2 percent according to analysts at Thomson Reuters Point Carbon.

Looking farther into the future, prices for winter delivery were up by 0.40 pence to 44.50 pence/therm. This comes after the Australian Bureau of Meteorology said yesterday that The El Nino phenomenon, the warming of Pacific sea-surface temperatures, is the strongest it has been since 1997-1998.

The potential is that this weather event could lead to a period of extreme weather and higher domestic and business demand for gas.

After two relatively mild winters, this return of harder weather could upset predictions about low wholesale gas prices this winter. Rising prices at the start of September could be the early stages of a price spike which will have a knock on effect both on the supply of and demand for gas in the UK.

As always in these situations, buyers face some difficult decisions about when and how much to buy. Essentially, gas buyers are betting on how mild or extreme the coming winter will be.

For advice on how market events affect your buying strategy, speak to one of our expert brokers today and we’ll be able to point you in the right direction. Call 0800 157 7175.

Alternatively, if you are a small or medium sized business, why not consult our Business Gas Buying Guide for SMEs.

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