U.K. Natural Gas Joins Commodity Rally With Fourth Weekly Gainby
Front-month U.K. rises amid weaker pound, higher crude oil
Colder weather, coal rally, nuclear outages add to gas gains
Natural gas in the U.K. is heading for its fourth weekly gain amid a “perfect storm” of bullish signals from energy commodities, currencies and weather.
Rising crude, a weakening British pound and a lack of liquefied natural gas imports coincided with cooler-than-average weather to extend the fuel’s rebound from the cheapest levels since at least 2009. Nuclear outages in Europe and soaring coal prices are adding to demand for the fuel used in power generation and heating, according to Nick Campbell, energy risk manager at Inspired Energy Solutions.
“Fears over colder weather and nuclear reactor outages in both France and now Switzerland have all raised forecasts for gas usage in order to generate enough power to make up the shortfall,” Campbell said by e-mail. The plunge in sterling makes U.K. gas more attractive to overseas buyers, as well as cause LNG shipments to divert to more lucrative markets in Asia, he said.
The gas rally highlights the interdependence of commodity markets as gas can be switched with coal in power generation and used as backup in case of outages at nuclear power plants. As colder-than-normal weather is forecast in Britain next week, supply options tightened as LNG tankers have favored Asia as a destination over the past two weeks with no arrivals scheduled yet for the next few days.
Average temperatures in the U.K. are forecast at 9.9 Celsius (48 Fahrenheit) next week, versus a 10-year average of 11.2C, according to the Weather Co. The last LNG tanker docked in the U.K. on Sept. 26, according to ship-tracking and port data.
“There’s a clear sum of different factors and they’re all pointing to bullish conditions,” said Giacomo Masato, a London-based research analyst and meteorologist at Marex Spectron. “Definitely cold weather is going to play a role.”
Gas for front-month delivery in the U.K. has advanced 11 percent this week, trading at 45.35 pence a therm by 12:27 p.m. in London, according to ICE Futures Europe. The November contract has 24 percent from its September lows.
The rally probably won’t be sustainable, Campbell said. A period of tight supply in LNG markets, which saw spot prices in Asia climb over the past three weeks, will ease as production facilities in Australia and the U.S. return from maintenance. One bullish factor was removed overnight as Norway averted a strike that would have curbed pipeline supplies to the U.K.