Weekly Energy Market Update - 03/02/2020

Last Week’s Pricing & Commentary

Another weak showing across the energy complex last week as both bearish fundamentals and technicals help prices drop further over the course of the week. The week began with gas and power moving sideways with Summer 20 up 0.05 p/therm and £0.04/MWh for gas and power. Comparatively, carbon had a more eventful start to the week as the Dec 20 contract dropped €0.44/tonne by 9am before rallying into the afternoon and settling €0.04/tonne higher than its open. Oil struggled as coronavirus news sparked nervousness and many expected waning demand in response. Mar 20 traded in a $2 range on the day as China announced a series of new measures being implemented to prevent the virus spreading further. 

Tuesday saw prices rise as bulls dominated and short sellers covered positions with Feb 20 expiry looming. High wind output put pressure on the prompt and helped limit near curve rises with Feb 20 gas and power trading up 0.65p/therm and £0.52/MWh whilst Summer 20 gas and power jumped 0.80p/therm and £0.79/MWh respectively. Carbon traded largely sideways, losing just €0.04/tonne on the day and offering little direction to gas and power contracts. Oil found strength, gaining $0.80/barrel on Mar 20 with analysts linking this to OPEC discussions of further supply cuts and API data showing a US stockpile drop. 

The rest of the week saw prices plunge, with marked weakness across the complex on Wednesday and Thursday. Gas and power Feb 20 fell 1.15p/therm and £1.25/MWh on Wednesday as the contract expired, positions finalised, and traders’ attentions switched to Mar 20.  Friday saw the news break that the UK was to remain a member of the EU ETS during the transition period out of Europe. This could see a spate of compliance buying and may swing some EUA analyst outlooks to neutral-bullish, however this also brings a return of UK auctions in March. UK gas seemed to follow suit somewhat with pricing across front month firming over the day, while seasons finished relatively flat.

This Morning’s View

This morning has seen further bearish pressure on gas and power markets. Front month Mar 20 gas is down 0.59 p/therm as strong wind output and a close to balanced NTS push near the near curve lower. Further down the curve price action continues to sell off with Summer 20. Winter 20 and Winter 21 down 0.18 p/therm, 0.85 p/therm and 0.92 p/therm respectively. Also providing bearish pressure is weak carbon with Dec 20 EUAs bucking Friday’s gains and currently trading €0.72/tonne below settlement having broken thorough technical support levels. The news of the return of UK auctions, while also bringing more buyers to the market, may have stoked fears of oversupply.  Oil markets are again weak in the face of demand fears and have again broken into fresh 3M lows and close to 1Y lows as the coronavirus outbreak continues to disrupt supply chains, factory production and hammered refinery output. Over the weekend the Chinese central bank pledged to introduce several monetary policy measures to increase liquidity and shore up the wold’s second largest economy, which may have comforted the markets somewhat with Apr 20 Brent down just $0.26/barrel from Friday’s settlement but $0.12/barrel up from the open.

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