Weekly Energy Market Update - 02/03/2020

Last Week’s Pricing & Commentary

There was marked weakness and volatility across the energy complex last week with coronavirus news at the forefront and the S&P 500 suffering its biggest weekly drop since the 2008 global financial crisis. 

Gas and power started the week by being pulled lower over coronavirus pandemic fears which also heavily affected equity futures. Summer 20 opened 0.82p/therm below Friday’s settlement and lost a further 0.22p/therm on the day. It was the same story for power with Summer 20 down £1.12/MWh on the day. The front of the curve was somewhat supported by LNG delivery disruption causing a short system and lower temperatures forecast for March. Baseload power Mar 20 was down just £0.15/MWh as a result. Prices continued to ease off on Tuesday before a short system and further LNG delivery disruption helped to lift prices on Wednesday. South Hook and Dragon were the focal points of the LNG delivery disruption triggering a short system on a day where demand rose above seasonal norms. Mar 20, Summer 20 and Winter 20 rose by 0.79p/therm, 0.43p/therm & 0.43p/therm on the day for gas whilst power rose £0.49/MWh, £0.37/MWh & £0.29/MWh respectively. Both commodities returned to weakness on Thursday with prices falling along the curve and the Mar 20 contracts expiring. As attentions shifted to Apr 20 as the front month contract on Friday, the contract was lifted by 0.70p/therm and £0.35/MWh for gas and power on the day. Price increases were felt along the curve for both gas and power however, coronavirus fears rage on and worries of how containment measures could affect the global economy continue.

Carbon and oil plunged lower on the week, largely influenced by coronavirus news. Dec 20 EUAs lost €1.74/tonne on the week whilst Brent May 20 plummeted $7.33/barrel, dropping below $50/barrel. Carbon pricing was hammered early in the week by increasing European coronavirus infection rates, especially in Northern Italy, as well as the publishing of the UK auction timetable stoking fears of an oversupplied market. Dec 20 opened €0.26/tonne below Fridays settlement before dropping a further €0.78/tonne, more than a €1 move on the day. Oil struggled too with Apr 20 losing $1.55/barrel on the day. Tuesday was a similar story with coronavirus news continuing to cause market movements as the US government warned its citizens to prepare for the virus’ arrival in the US. Also, the API report showing a US crude stockpile build of 1.3 million barrels in an already oversupplied market helped pressure oil prices further. Wednesday brought about a slight rally from carbon as the Dec 20 contract eyed the €24.50 mark although the contract returned to weakness the following day. Volatility for carbon continued through to the end of the week whilst the story for oil was much the same with the commodity getting pummelled every day. 

This Morning’s View

Very strong open with Summer and Winter 20 gas up 0.697 p/therm and 0.838 p/therm respectively. Dec 20 EUAs and May 20 Brent are up €0.16/tonne and $0.59/barrel at time of writing. The system has opened short again, currently 25.5mscm below forecast demand. Wind output is lower this morning compared with recent levels, currently accounting for c. 8.12GW. This has left gas burn generation to pick up some of the slack with it providing 40.32% of the stack at time of writing. Further gains could be seen today with markets currently rallying. 

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