Weekly Energy Market Update - 02/12/2019

Last Week’s Pricing & Commentary

Over the course of last week, much of the energy complex softened further. Dec 19 futures expired, and Jan 20 contracts became the new front month future late in the week. Pricing fell for much of the week related to a relatively comfortable system, up to 20 expected LNG deliveries by mid-December as well as upwards revisions to temperature forecasts into the second half of week 49 and 50. Jan 20, Summer 20 and winter 20 posted respective losses of 2.09 p/therm, 2.45 p/therm and 2.27 p/therm over the course of the week. UK power was a little more resilient with Jan 20, Summer 20 and Winter 20 posting losses of £0.43/MWh, £0.93/MWh and £0.84/MWh. The Jan 20 contract would have been supported by downwards revisions to wind output forecasts in the coming week as well as strength in carbon pricing.

Dec-19 EUAs posted a gain of €0.43/tonne on the week and regained the €25/tonne level. Gains were led by Wednesday’s performance where the contract gained €0.77/tonne, likely on the news that EDF were further extending outages in the French nuclear fleet as well as the French TSO releasing a warning that the country could see a significantly short power system in the coming weeks should temperatures fall further. This news came on a day where there were no auctions, further fuelling the contract to push through technical resistance levels. With Dec-19 EUA expiry on 16/12/2019 and supply for the period ending, pricing could be supported and potentially push higher. However, with Q1 20 fundamentals still looking relatively weak it is hard to support a view of significant upside in the coming weeks.

Crude oil markets were relatively sideways for much of the week with offsetting news around US-China trade talk optimism, the EIA report showing a build in US inventories and the Thanksgiving holiday thinning volumes on Thursday. However, Friday saw the Feb 20 contract drop $2.71/barrel amidst news that China had issued a warning to the US that it would look to take “firm counter measures” in response to the US supporting anti-government protestors in Hong Kong. Pricing also came under pressure from a report showing that US production had risen to a new record of 12.46 million barrels-per-day in September.

This Morning’s View
This morning has seen UK gas weaken further. Jan 20 is currently 0.98 p/therm below settlement while Summer 20 and Q1 20 are down 0.55 p/therm and 0.62 p/therm respectively. This may be related to National Grid reporting the NTS as balanced despite demand sitting at 340 mcm, 37 mcm above seasonal norms. CCGT demand is high with current wind output at just 5.19 GW, and pricing could be supported with forecasting showing no drastic increases in output over the day. Carbon is weaker this morning with Dec 19 EUAs currently sitting €0.44/tonne below settlement as the contract slipped after giving up €25/tonne. Weakness in gas and carbon could provide pressure to UK power futures on the open, however prompt pricing could be supported by low wind output and high gas-for-power utilisation. Brent Crude pricing is resurgent this morning as the Feb 20 contract sits $1.18/barrel above Friday’s settlement. This may be related to news that factory activity in China increased in November for the first time in seven months. Pricing may also be supported by news that OPEC+ could look to support increasing current supply cuts by 400,000 barrels per day ahead of their highly anticipated meeting at the end of the week.
 

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