Weekly Energy Market Update - 02/09/2019
2 Sep 2019

With last Monday being a bank holiday, UK gas and power markets remained closed from the weekend however carbon’s Dec-19 contract took the opportunity to push €0.69/tonne higher and could have provided support for gas and power prices to move higher too. When gas and power markets did open on Tuesday and the end of August neared, the Sep-19 gas and power contracts both faced thin volumes and moved lower as traders began to return to their desks from summer holidays and shift their attention to Oct-19 contract.

The Oct-19 contracts really were the talking point for the week as gas Oct-19 jumped 2.75 p/therm on Thursday to close at 33.75 p/therm which may have been an attempt to bridge the gap between the Oct-19 contract open price of 31 p/therm and the Nov-19 contract open price of 43 p/therm. With obvious strength in the Oct-19 contract, gas prices at the front end of the curve were supported although the disparity in strength was marked with gas Winter-19 rising 1.05 p/therm and Nov-19 rising 0.7 p/therm on the same day. Despite these signs of the Oct-19 gas contract being undervalued, it remained at a price c. 10 p/therm lower than Nov-19. Power prices followed gas again with Oct-19 increasing drastically, Winter-19 supported by this but the effects dwindling by Summer-19 where the price movement on the day was a mere £0.28/MWh.

The week ended with some volatility as NBP Oct-19 traded up 1.67 p/therm to the highs of the day before selling off and finishing the day 0.29 p/therm lower than the open. This price ease could have been helped by length in the NTS, slightly cooler temperatures, increased levels of wind in the generation stack and demand falling closer to seasonal norms.

Carbon continues to show signs of volatility as the Dec-19 contract rose over the course of the week, gaining €1.18/tonne, following a month of consistent losses. This price increase was helped by higher oil prices which were likely linked to optimism over U.S./ China trade negotiations and lower than expected U.S. stockpiles which eased worries of global economic growth. Oil showed a $2.53/barrel increase up to Thursday before the contract sold off significantly on Friday where it lost $1.09/barrel on the day with views Hurricane Dorian could dampen demand. With this said, the commodity still experienced its biggest weekly increase since early July.

This Morning’s View:
Gas has opened extremely weak this morning, with Oct-19 down 1.88 p/therm and Winter-19 down 1.177 p/therm at time of writing. The effects are still felt along the curve as gas Summer-20 is down c. 0.926 p/therm, showing the morning price movement isn’t just isolated to the front month or season. Forecast demand is only 12.1mscm higher than seasonal norms and with the NTS reported as 20mscm long this morning, this could be placing pressure on gas to shift lower. Additionally, renewables are currently accounting for 25% of the generation stack which could help ease the burden for gas burn generation which in turn could maintain softer gas prices. With weakness being shown by carbon and oil too this morning, prices could ease lower across the complex. Dec-19 EUAs are currently down by €0.38/tonne as the contract drifts below the €26 mark again. The Nov-19 Brent contract is down $0.25/barrel as new tariffs imposed by the U.S. on China came into force on Sunday.

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