In 2006 it was a year of contrasting halves, with a sustained rise until mid April and then a sustained fall. It is fair to say that this fall continued in 2007, the market hit an all time low in February when Summer 07 fell below £30 and Winter 07 fell below £35, at these levels many of the generators turned into serious buyers specifically British Energy became aggressive buyers and the market moved almost £5 in three days. At this point many of the trading houses started to sell into the perceived buying strength, the market through most of the Summer 07 period saw quite range bound trading with the Summer 08 just failing to fall below £35 and not rising above £40 Winter 08 like a slave followed suit.

During this time, emissions markets started to stabilise as traders watched the stream of NAP allocations being divvied out and calculated that a small rise in emissions costs would ensue. EUAs traded as low as €15 (for 2008) but settled around €18 in the Summer lull.

Coal in previous years was always a cheap fuel but with Chinese demand and ever increasing freight costs, it suddenly looked expensive relative to the falling gas prices and for the first time in many a year we saw gas as the marginal setting plant during the Summer. This pressure on gas made the Langeled flow ever more important and the games played by Statoil Hydro on importing gas into the Uk seemed to last most of the Summer. Many would have predicted from 2006 a sustained push on prices down and perhaps as September rolled on players thought that a Winter fall could be imminent.

However in September the first of the big oil price surges occurred with prices moving away from $70/ brl to $90/brl in a matter of weeks. The gas price inevitably followed suit and suddenly buying Summer 08 at £35 looked very cheap. The increased pressure on oil prices often geo-political and a possible squeeze on gas demand in Europe saw gas prices in the prompt rise to levels seen in 2005/6 and the market once very bearish turned bullish. Not many forsaw the rise that then ensued with prices continuing to rise in a three month bull run. Summer 08 hitting above £50/MWh and Winter 08 above £60/MWh.

The spread differentials between Summer and Winter have narrowed at one point with emissions shenaningans between years to zero but in reality the LPCD has also forced traders to re-assess where potential supply squeezes may occur and the Summers have had to get more expensive to account for the forced reduction in power output from 9 signed up LPCD participants.

The fears for 2008 is when will the bull run cease, with oil reaching $100/brl on New Years Eve the signs look ominous. But markets have a habit of correcting and if as many predict that the economies of the world go into a mild downturn then oil demand will fall, prices will fall bring gas and power prices with them. Although the retailers are starting to hurt and have started the oligopolistic price increases seen two years ago, this is often a sign that the wholesale market is looking slightly overcooked. History also suggests that if no new fundamentals come into play then we can expect price falls in mid February, how big and for how long is difficult to predict, but with more and more players and many large customers buying forward the markets have not looked this healthy in terms of liquidity for some time.