Weekly Energy Market Update -05/10/2020

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Last Week’s Pricing & Commentary

Last week saw sellers dominate gas markets, also sweeping into power contracts, supported by an aggressive pick up in covid-19 cases in the UK which has increased week on week, prompting lockdown worries. Front month Nov 20 slipped 1.4p/therm, with bearish pressure compounded by increasing imports from Norway, causing oversupply in the system. Coupled with this, Dutch imports almost doubled on Friday with flows totalling 10 mcm/day when compared to Thursday. Backend NBP contracts also suffered, with Summer 21 and Winter 21 contracts recording a loss of 1.59p/therm and 2.06p/therm, respectively. Weakness in NBP saw power suffer, with Nov 20 baseload down 3.67 £/MWh.

Stronger wind outturns have pressured front month NBP and Power contracts, an average of 6.5GW was produced on Friday, reducing gas demand for power generation by 25 mcm/day. Additionally, Britain has now entered the Winter period with storage levels down 22% which has created concern as to how flexible supplies will be in the event of colder than usual days. Moreover, NBP suffered on news that LNG imports will increase with nine cargoes expected to arrive in October. Carbon closed last week up €0.85/tonne, though much of this was attributed to volatile rallies in future contracts, rather than fundamental drivers. Elsewhere Oil plummeted with Nov 20 Brent down $2.94/barrel amid oversupply concerns, following a 3 million build in inventories compared to expectations of a 1.3 million draw. 

Last Week’s Average Generation Stack

This Morning’s View

This morning has seen energy markets clawing back last week’s losses, with Nov 20 NBP up 1.02p/therm. Wind outturn is forecasted to drop from 6.1GW to 5.5GW over the coming week, below the average, potentially providing support for front month Power and NBP contracts. Coupled with this are expectations of below seasonal norm temperatures this week, providing an additional layer of support for NBP and Power contracts as demand for heating is likely to rise. Dec 20 EUAs are down 0.28 €/tonne, likely due to above normal auction volumes this week at 20.8m, versus the 16.0m in the previous week. Dec 20 Brent is up $1.17/barrel on gitters that Trump will be discharged from hospital as early as Monday, after testing positive for COVID-19.
 

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