No trader knows exactly when to trade, but with some analysis potential opportunities may come to the fore. If we look at Apr 06 and May 06 we can see that they are trading at £43.00 and £41.75 respectively This £1.25 differential can move within day and perhaps this snapshot is surprisingly small and so for analysis purposes we should say that the differential on balance is between £1.25 and £2. Not an unreasonable spread and so some traders might say where is the value.

However, if we look at historical information on exactly the same day last year Apr 05 and May 05 although trading at much lower levels, they also had a differential of around £2. (see graphs) So again many traders would say that they can see no value here either. However, if we incorporate the news that Rough storage is likely to come back in May 06 we would reasonably expect gas prices to fall dramatically in May 06 as more gas becomes available, more than probably bringing power prices with them. It is therefore not unreasonably to see the spread between April 06 and May 06 widen, particularly as it is at its lower end of the spread differential.