UK gas prices erased previous gains Thursday as pricing supports from crude oil markets collapsed overnight and influential trading companies adjusted exposures to longer-dated gas contracts.
"We're seeing a full reversal from yesterday [Wednesday], which now looks like it was a bull trap as oil and other commodities are fully reversing course," one trader said.
ICE Brent futures in August fell $3 to $111.21/barrel in morning trading Thursday on a combination of macroeconomic factors, leading a retreat replicated across all other major European commodity markets including gas, power and carbon as utilities liquidated positions.
Benchmark forward gas contracts plunged as EU carbon prices touched a one-year low, making gas less competitive against coal in the generation mix.
Winter/2011 gas fell 1 pence/therm to 69.5 p/th in response to routs elsewhere and less attractive profit potential for gas-fired power generations as coal becomes more competitive.
July's coal switching price is about 53 p/th, according to in-house estimates from one trading house, suggesting that coal-fired plants will begin eating into gas' share of the generation mix.
Month-ahead gas dropped half a penny to 57.05 p/th, well above the switching point.
Gas delivering Thursday fell a fraction of a penny to 58.1 p/th and day-ahead was down 0.4 p/th at 57.85 p/th despite the system running short of gas.
