LONDON: British summer gas prices hit a 13-month low on Monday, defying sub-zero temperatures and above-average demand as operators withdrew gas from amply stocked undergound sites and fears of a freezing winter faded.
The contract fell to its lowest level since November, 2010, down 1.50 pence at 51.25 pence/therm, slipping further below its technical supports and hinting at more downside following a months-long trend of declines.
"This is the coldest and highest demand day we've had in some time...but prices have kept on falling...and people are now wondering if there will be enough cold days in February to empty what's in storage," a UK gas analyst with an investment bank said.
Traders rely on cold winter weather to sell gas they injected into storage during the summer months to make a profit. Mild winters preserve stock levels and pile pressure on gas prices because supply becomes so abundant relative to demand.
UK day-ahead gas prices fell despite temperatures slumping to some of the lowest levels seen so far this winter, shedding more than 4 percent as storage withdrawals counter-balanced a spike in demand.
Monday gas demand was at 363 million cubic metres/day, pegged 8 percent above seasonal norms, data from network manager National Grid showed.
Around 43.50 pounds per megawatt-hour (MWh), power prices for baseload (24 hours) delivery on Tuesday also remained weak for the time of year.
British gas storage sites were filled to almost 86 percent on Sunday, compared with a European average of 73 percent, according to data from Gas Infrastructure Europe.
Benchmark front-season gas fell to 51.25 pence per therm, its lowest level since late November 2010, in part reflecting losses in the power and coal markets, which also fell to late 2010 lows.
Traders said the drops were largely a result of the worsening economic outlook in Europe following the credit downgrade of nine euro zone countries late on Friday by a major rating agency.
WEATHER
Britain's Met Office said Tuesday's temperatures would likely remain similar to those seen on Monday and during the weekend, with freezing temperatures possible in many parts of the UK.
By Wednesday, however, milder weather was expected to take over much of Britain.
TECHNICALS
Technical indicators for the UK's NBP summer 2012 gas contracts were bearish on Monday morning, with the relative strength index (RSI) hitting 30 points, implying an oversold market and opening the possibility of some technical buying.
However, the contract's moving average convergence-divergence (MACD) signal lines have converged so far on the downside and are now about to cross, implying more bearish price momentum.
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