Summer 07 has traded down to around £23.40 today and this is easy to justify and explain. Plentiful gas supplies a collapse in emissions prices and a feeling that the market is still a little over-priced. Summer 08 is however trading at £31.75. The spread is therefore £8.35. This is nearly as large as the spread between Summer 07 and Winter 07 (£11.20).

To put this into context the spread between Winter 07 and Winter 08 is £2.00. This is partly the time value of money and a premium for paying up forward.

It points to either Winter 08 onwards being under-valued and Summer 07 being under-valued or Summer 08 extracting a massive premia. There is no doubt that if you were to strip out the cost of emissions between the Winters then they are in backwardation.

So the Summer 08 looks over valued some of it is the difference between emissions prices, but most of it is down to trader sentiment and the premium extracted for buying forward. It is clearly not worth it and one would expect the gas prices for Summer 08 to tumble the spark spreads are very high and so expect there to be further falls.