Weekly Energy Market Update - 04/11/2019

Last week saw near curve UK gas hold and further dated contracts soften a little over the week. The front month contract gained only 0.13 p/therm on the week but traded in a range of 1.75 p/therm. Despite the only day of overall within-day gains being Monday, strong opens saw the contract post a small gain. Summer-20 traded down over the first half of the week and despite consecutive gains in the latter part of the week, the contract lost 0.18 p/therm. Winter‑20 saw slightly heavier loses at 0.44 p/therm. Despite describing the front of the curve holding strong it’s prudent to put this in context in that the last time the Dec-19 contract saw these levels was in early June 2016 and the contract may have further to fall still with bearish fundamentals remaining. UK power did not follow gas as closely this week with near-curve contracts seeing slight uplift linked to strength in carbon.

Dec-19 EUAs posted consecutive day-on-day gains from Monday to Wednesday with the Brexit extension being confirmed, further pushing away the prospect of an imminent no-deal Brexit, no auction on Wednesday, and EDF extending power outages in the French nuclear fleet seeing the contract breaking through several technical levels. However, the remaining two days of the week were spent pointing downwards perhaps trading down with UK power and gas, UK political uncertainty and rejection of higher pricing levels. However, despite these losses the contract managed to hold the €25/tonne level even with a brief dip below this on Friday.

Brent Crude spent much of the week trading down, losing just over $2/barrel from the open to Thursday’s settlement. Many in the market were linking this to US crude stocks rising, demand concerns over weak economic data, and souring sentiment over US-China trade talks. However, on Friday the contract posted a gain of $2.24/barrel helping the contract to finish the week flat to the open. This sizeable gain has been linked to a turnaround in US‑China trade talks with US officials hoping to get a preliminary deal signed this month as well as more positive economic data coming out of the two largest global economies. With the US Fed cutting rates to support growth, continued forwards momentum in trade talks and supply cuts, oil pricing could be supported in the short term. However, the market is still rife with fear of a global macro-economic correction and a demand downturn with it.

This Morning's View

This morning has seen front month gas open 0.68 p/therm higher than settlement, breaking the prior week’s high. However, since then the contract has traded down to 0.1 p/therm below settlement perhaps in relation to a largely balanced NTS and early weakness in carbon with Dec-19 EUAs down €0.34/tonne. Brent crude opened weak, trading down to lows of $0.41/barrel below settlement but has since strengthened and is largely in line with Friday’s settlement. In the coming week a flurry of month-end and quarter-end economic data publishing, including the Bank of England Interest Rate decision, could see the macro-sentiment shift around, increasing volatility. Colder temperatures could see UK gas demand and pricing supported; however, several LNG arrivals are expected this week and storage are levels still high, which could allay fears of significant upside moves.

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