London (Platts)--18Feb2011/1026 am EST/1526 GMT
Recent increases in the Brent crude oil price have widened the contango on the UK power and gas markets to its highest level in three months, traders said Friday. UK baseload power for winter 2011 delivery traded at a GBP4.60/MWh premium to the summer 2011 contract on Thursday, the highest spread between the two contracts since November 19, Platts data showed. Later contracts such as summer 2012 power and winter 2012 power also have gained in value more quickly than summer 2011 in recent days, following similar movements in the UK gas market. Warmer weather since January and good supply have pressurized UK spot power and gas prices in recent weeks, contributing to the weakness of the summer 2011 contract, and to the increased contango between summer 2011 and later forward power contracts, markets sources said. The spread between summer 2012 baseload power and summer 2011 baseload stood at GBP2.80/MWh Thursday, its highest level since November 11. "The front is so weak and the crude is supporting the back of the curve," said a trader at a large UK utility on Friday. In the UK gas market, winter 2011 gas and later contracts were all trading Thursday at their highest premium to summer 2011 gas since November. Summer 2014 gas closed at 58.75 pence/therm on Thursday, a 6.30 p/therm premium to summer 2011 gas. Long-term gas sales contracts, especially in Continental Europe, index the price of gas supplies to oil prices over the previous six to nine months. The link between long-term supplies and spot market deals in the UK is means that immediate increases in the oil markets feed through to the price of spot gas for periods six to nine months out, such as future winters and summers. But for summer 2011, much of the indexation is already set. The April ICE Brent contract hit $103.05/barrel Friday morning on continued unrest in the Middle East and North Africa. Natural gas is the dominant fuel in the UK power sector, and UK power and gas prices tend to be highly correlated.--Olivier Lejeune, olivier_lejeune@platts.com--Alex Froley, alex_froley@platts.comSimilar stories appear in European Power Daily. See more information at http://bit.ly/EuropeanPowerDaily