A healthy supply situation saw last week finish on a bearish note and this sentiment was seen at the start of this week. However, Wednesday’s bearish session did not return and Thursday saw contract gains return to the gas market. Oil was the driving force though substantial gains in the coal markets and a firming carbon market all provided additional momentum. Uncertainty over northwest European gas flows were also a factor. Oil prices jumped to their highest close since August 2008 finishing Thursday at $117.36 (intra day levels have since seen this figure breached reaching $117.60 at time of writing). Fresh concerns regarding oil supplies were the catalyst with analysts describing trading as the most volatile seen in the last 2 years. Libya produced 1.69million barrels a day before the unrest, according to IEA figures, but output has plunged to a near standstill. The key oil region in the east of the country has changed hands 4 times in 3 weeks and Libyan troops have most recently pushed back rebel forces. The market is beginning to see this conflict as a stand off with little sign of resolution. Storage levels in the US (currently full) may provide a dampening influence to the oil market although there is still a sense that there is potential for the bullish oil sentiment to remain. This will impact the front end of the gas curve while UK energy market policy will continue to impact the longer dated gas contracts; the most significant gains this week have been seen at the back end as traders start to calculate the impact of the carbon floor price on fuel curves. What is certain is that the carbon floor price will radically change how we consume gas and the market is adjusting to this.