British benchmark front-season gas fell to its lowest level in four weeks on Wednesday as oil prices dropped and low demand in the prompt market also weighed on prices.
The winter 2012 contract fell to 72.50 pence per therm, its lowest level since early March, failing to find support at its 50 exponential daily moving average (DMA) value just above 72.50.
Prices followed the oil market, where front-month Brent crude fell under $123 a barrel.
Power, coal, and carbon prices were also down, with European Union benchmark allowances dropping below 6 euros ($7.87) a tonne for the first time.
Despite the price drop, Bank of America Merrill Lynch (BoAML) was bullish on UK gas prices for the remainder of the year.
'Despite the weak outlook for gas consumption, we believe European gas prices will remain supported this year as indigenous production continues to decline rapidly; LNG (liquefied natural gas) into Europe will be squeezed by Asian demand; and higher oil supports oil-indexed prices,' the bank said in a research note.
'We see upside for (UK NBP) Winter 12/13 gas to rise to 90 p/th.'
BoAML also said global LNG prices could rise to $18 per million British thermal units.
'In 2012, LNG prices will likely continue to be supported by strong Asian demand as Japan continues to face nuclear plant outages, China and India rapidly build out regas capacity, and Thailand, Indonesia and Malaysia emerge as new players. With no major supply additions until 2015, we see import growth substantially outpacing supply capacity growth,' the bank said.
WEAK PROMPT DEMAND
Traders said the weak prompt delivery gas market was also weighing on the price curve.
'Demand for short-term gas deliveries is really low because it has been so mild, and that has begun to feed into the far curve,' one gas trader said.
Supply from LNG terminals and neighbouring markets was also strong.
Within-day gas prices were trading around 59.70 pence per therm at 1515 GMT (1615 BST), and prices for next-day delivery were at 59.25 pence.
British power prices slipped more than 1 pound to 46.70 pounds ($74.13) per megawatt-hour (MWh) following the earlier-than-expected restart of a nuclear reactor.
EDF Energy reconnected its 480 MW Hinkley Point B-8 nuclear unit on Tuesday evening, while it had been planned to restart on Thursday following a gas circulator earth fault.
The utility is also due to restart its 620 MW Hartlepool 1 reactor on Thursday, further widening supply margins.
Winter 2012 spark spreads turned negative on Wednesday, which means that power producers using gas to generate electricity are losing money running their plants.
This further dampened the outlook for inefficient gas plants, after several utilities already said they would idle some of their old gas-fired power stations. ($1 = 0.7623 euros) ($1 = 0.6300 British pounds)
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