In a week dominated by the conflict between Russia and Ukraine over Crimea, both power and gas markets strengthened slightly leading up to Sunday’s referendum. Fears surrounding potential trading sanctions imposed on Russia from the EU and US spread nervousness into the markets, with prices rising throughout the week. As per the previous weekend, the rise can be attributed to market players taking positions in anticipation of this weekend’s vote.
Weather has remained above seasonal norm all week and is expected to continue throughout March. UK Gas storage is currently the highest it has been since 2008 at 45% compared to 34% the same time last year. The high storage levels limited the gains throughout all gas periods brought on by concerns over Crimea.
Further out on the power curve, the rallying oil and gas price was offset with the falling carbon and coal prices limiting any rises. Carbon fell as participants saw opportunities to profit take and sell their long positions originally taken ahead of the of the first backloading auction held last Wednesday. Coal was also kept subdued as low Asian demand continued.
The Crimea vote on Sunday had little effect on energy prices with the markets opening below Fridays close. The sanctions that potentially maybe imposed on Russia will most likely not include gas or oil trade. Europe takes a third of its gas requirements from Russia from a pipeline that travels through the Ukraine. Russia’s economy is heavily dependent on oil and gas export, and due to the high levels of storage in Europe any threat by Russia to cut off supply would be more damaging to themselves. Despite the high gas storage levels, Europe is heavily dependent on Russia for its gas and oil needs, and while in the short term the energy system would cope without Russia imports, long term trade restrictions would not be in the best interests of Europe for security of supply.
Carbon has continued its sell off and is now trading at €6.26 per tonne, down from €7 from last week. The Chancellor’s statement this Wednesday (19th March) is expected to bring confirmation of the carbon floor price being frozen from April 15. This is also limiting gains further out on the curve.
This week should see the market remain range bound as a comfortable supply system will keep any remaining bullish sentiment over Crimea subdued.