WEEKLY ENERGY MARKET UPDATE: 01.02.21

Last Week’s Pricing & Commentary

A volatile week across the energy complex eventually saw contracts dropping lower, although not without some fight. Front-month gas began the week well bid, gapping higher at the open by 2.30p/therm, likely due to the snowfall that weekend and lower temperatures but this was short-lived as the contract began excessively shedding value. Feb 21 NBP slid to 55.55p/therm, almost 7p/therm below the open with weakness largely attributed to the expectation of more LNG reaching UK shores in Q2 as well as a weaker prompt market due to strong demand being well met. Contracts continued to slide through to Tuesday in both gas and power before the commodities pushed to retrace Monday and Tuesday’s losses. Revised forecasts impacted prices once again with temperatures expected to be lower than seasonal norms for the beginning of Feb. To add to this, wind output dropping alongside the lower temperatures saw gas and power prices come within touching distance of Monday’s open, in many cases, by Thursday when Feb futures contracts expired. This expiry caused a further squeeze on pricing with Mar 21 NBP and baseload gapping higher at the open before also managing to post a within-day gain of 0.56p/therm and £2.77/MWh, respectively. Friday brought about a return to the weakness seen earlier in the week to help Mar 21 NBP and baseload post losses of 4.63p/therm and £2.30/MWh on the week.

Losses filtered through to later-dated contracts with Winter 21 NBP and baseload still posting a loss of 1.02p/therm & £1.10/MWh, respectively. Dec 21 EUAs dropped by €1.55/tonne on the week as the first auction of the year saw Friday’s price action erase gains made between Tues-Thurs and solidified a loss on the week. Oil prices were more stable overall, despite some ranges widening, as Apr 21 Brent became the front-month contract and prices generally settled close to the open, even if it was a rollercoaster between these two points. Apr 21 Brent dropped $0.07/barrel on the week, maintaining the mid-$50 level. The contract continued to grapple with COVID-19 impacts, both the good and the bad, as countries worldwide soldier on with their own vaccine rollouts.  

Last Week’s Average Generation Stack
 

This Morning’s View

Despite forecasts for the first half of Feb remaining low, gas has fallen off a cliff early on. Mar 21 NBP is currently 4.50p/therm below settlement. The contract could remain volatile yet due to low wind, no changes in the forecast (yet), and the end of true winter months in sight. Carbon began the day above settlement but now sits close to flat. Oil is pointing upwards, with Apr 21 Brent up $0.57/barrel, as a tighter market could signal more upside potential. Low wind output could provide some price support but length in the system could offset this. 
 

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