Weekly Energy Market Update - 05/07/2021

Last Week’s Pricing & Commentary

Last week saw gains across the complex, especially so in gas markets where front month pushed over 9p/therm higher than the prior week’s settlement. Whilst the weekly price movement looks strongly up, within day there were some impressive trading ranges with Friday seeing a 5.66p/therm swing on the day. The front of the gas curve continues to be supported by the same underlying fundamentals of strong Asian demand for LNG and low storage levels across Europe. However, also adding some further support last week was the news of unplanned Norwegian maintenance as well as the high levels of planned maintenance in July with both the Nord Stream 1 and Yamal assets due to be taken offline. This, along with extremely strong hub pricing, further stokes fears of refilling storage levels to adequate levels to cope with a cold Winter. Further down the NBP curve, pricing rallied but gains faded towards the back end with Winter 21 pushing 8.50p/therm higher whilst Summer 22 gained 2.39p/therm. Power markets tracked gains in gas and carbon with front month, Winter 21, and Summer 22 trading up £6.76/MWh, £6.21/MWh, and £2.07/MWh on the week. Carbon markets were generally bullish last week, being dragged higher by rampant gas hub pricing. Dec 21 EUAs gained €2.30/tonne reaching new highs of €58.64/tonne on Thursday before profit-taking and a sell-off in gas pulled pricing lower.

Also helping to provide support was seemingly bullish political support with leaked European Commission documents aiming to reduce the EU ETS emissions cap as well as introducing rules to only allow free allocation where a company is introducing energy efficiency or emission reduction technologies. The UK ETS was less bullish on the week, hamstrung to some degree by a weak auction on Wednesday that saw a clearing price some £1/tonne below the market. The weaker performance of UKAs sees December EUAs trade at a c. £1.70/tonne premium to UKAs. Brent markets were initially weak on Monday as traders were concerned over growing delta variant COVID-19 cases, although strong demand manifesting in US crude stock drawdowns helped to bring buyers to the fore once again. Late in the week volatility was added by a public disagreement between OPEC+ members and the UAE whereby OPEC+ wants to increase crude production to match higher demand whilst the UEA wants to continue to limit supply and support pricing.

Last Week’s Average Generation Stack

This Morning’s View

This morning has seen gas continue to march higher with front month up just over 3p/therm as rumours emerge that US politicians have called for a repeal on the sanctions waiver for companies involved in Nord Stream 2 pipeline, which could see gas flow for Winter 21 limited. Elsewhere Dec 21 EUAs are up €0.76/tonne, dragged higher by gas pricing, whilst Sep 21 Brent sits $0.11/barrel above settlement.
 

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