UK petrol prices fall after record rally

UK gas prices fell sharply on Tuesday after hitting new highs at the end of last week, although prices remain at extremely high levels as winter approaches.

The drop followed a sell-off in Europe on Monday, when UK markets were closed for the bank holiday weekend, with UK prices closely following movements in Europe.

The European selloff was triggered by warnings from the EU on Monday that emergency interventions to cut the price of electricity could be needed, with plans to separate it from the gas price spike.

Analysts, however, warned that gas prices remained extremely high and volatile as traders continued to scramble to secure supplies ahead of winter, fearing Russia could make further cuts in supplies to the mainland.

Russia’s Gazprom cut flows to Engie on Tuesday, the French company said, citing a contract dispute.

German Chancellor Olaf Scholz said efforts to fill storage had put the country in a better position to deal with the Russian gas threat, although Berlin still imposes plans to reduce consumption during the winter months.

Traders said Monday’s European selloff was only partly a retracement after gas price gains accelerated to all-time highs last week, adding that they should not yet be seen as a signal that the upward trend has been interrupted.

Record gas prices have stoked a cost of living crisis across Europe, while in the UK warnings indicate energy bills for typical households could exceed £6,000 a year in the spring, more than four times the level of a year ago.

“The balance of price risk is still pointing upwards,” said analysts at Energy Aspects, a consultancy.

They added that they expect prices “to remain extremely volatile over the next few weeks and to be in a wide range between €270 and €340/MWh”.

European benchmark TTF prices hit a record high of 343 per megawatt-hour last week, before falling. Prices were trading around €251 per mwh ($74 per million British thermal units), the lowest level in two weeks but still more than three times the level at the start of June before Russia restricted flows on the Nord Stream 1 gas pipeline.

In the UK, gas prices fell 24% on Tuesday to £4.25 per therm ($50 per mmbtu) after briefly trading above £6 per therm last Friday after gaining almost 40 % during the week. Prices remain almost 10 times higher than their level at the start of 2021.

Prices in the UK have been below those in Europe for much of the summer as the country uses its liquefied natural gas import capacity to send pipeline supplies to Europe.

The UK also derives around 50% of its annual gas consumption from domestic production in the North Sea.

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