UK GAS-Higher Forecast Demand Supports Price

Posted by Joseph Keefe January 27, 2016

Recent oil gains also support prices; high imports curtail storage withdrawals.

British gas prices rose on Wednesday in line with higher demand due to a forecast dip in temperatures and higher crude oil prices in the previous session, trade sources said.

Gas for immediate delivery rose 0.30 pence or 1.02 percent to 29.80 pence per therm by 0903 GMT, while the day-ahead contract traded 0.40 pence or 1.35 percent higher, at 30 p/therm.

The network was balanced between supply and demand on Wednesday but analysts and traders expect local distribution zone (LDZ) demand - which includes gas for residential heating - to jump 34 million cubic metres/day (mcm) on Thursday, helping support price gains.

"LDZ demand is supposed to be about 200 mcm tomorrow but then it will dip down again by Friday as temperatures return to above-average levels," a UK-based gas trader said.

A trader at a major European utility said British gas prices had become highly correlated to swings in crude oil prices, with the latest uptick on the UK gas hub reflecting Tuesday's oil rally.

Crude oil futures rose on Tuesday on hopes for output cuts, but on Wednesday fell back towards $30 a barrel as profit-taking and a surprise rise in U.S. inventories wiped out a chunk of the previous session's gains.

Strong supplies from the UK Continental Shelf and Norway, Britain's main gas supplier, curtailed withdrawal rates from underground storage sites.

Britain's leading storage site Rough was expected to pump 16 mcm/day while no medium-range storage flows were anticipated on Wednesday, Marcel Boonaert, head of trading and portfolio at Wingas UK said in a note.

Overall, temperatures in Britain were expected to remain near or above average until around Feb. 8, the UK's Met Office said.

Further along the curve, the contract for gas delivery during the summer was at 28.65 pence/therm, up 0.30 pence.

In the Netherlands the day-ahead gas price at the TTF hub fell 0.15 euro/MWh at 12.90 euro/MWh.

In the European carbon market, front-year allowances eased 0.06 euro to 6.04 euro a tonne.