Weekly Energy Market Update - 06/01/2020

Last Week’s Pricing & Commentary

The week began with expected lower volumes trading across much of the energy complex and bearishness continuing. UK and European storage remained nearly full, weather stayed near seasonal norms, strong wind generation kept renewable generation high and gas burn generation lower and supply has outweighed demand. All the aforementioned helped promote bearishness with fundamentals showing little reason for price rises. Prices across the complex jumped on Friday as tensions between the Middle East and US increased following a US airstrike on Baghdad airport which killed Iranian Major-General Qassem Soleimani. Statements from Iran’s supreme leader, Ayatollah Ali Khamenei, vowing revenge and the US claiming Soleimani was planning to kill Americans did little to ease market nervousness. Furthermore, the US have deployed an additional 3,000 military troops as hostilities remain intensified.

Gas shifted lower for most of the week with the Feb 20 contract posting losses of 2.72p/therm from Monday to Thursday with the move lower happening along the curve. Summer and Winter 20 both lost 1.95p/therm and 2.02p/therm respectively. With mild weather and strong renewable generation looking to continue in the near term, prices eased lower. Power moved in line with gas, Feb, Summer and Winter 20 lost £1.53/MWh, £1.62/MWh and £1.23/MWh respectively. Both commodities continued to show price drops along the curve rather isolated front end losses. The airstrike on Friday pushed up both gas and power prices as front month contracts gained 2.02p/therm and £1.38/MWh respectively on the day.  

Carbon dropped considerably on Monday with the Dec-20 contract losing €1.76 on the day, erasing the gains of the last two weeks, helped by the wider energy complex bearishness. Carbon continued to shed value towards the end of week until prices were propped up by higher prices in gas, power and oil. Friday saw prices up €0.35 to end the week at €24.98/tonne, just below the €25/tonne mark once again. 

Oil traded sideways for most of the week until the curve was lifted on Friday following the airstrike news as the market worried about the possibility of lower or disrupted supply due to heightened geopolitical risk. The front month contract ended the week at $68.7/barrel, up $2.38 on Friday alone.

This Morning’s View

Gas opened strongly with Summer 20 up 1.46p/therm from settlement although the contract has now traded down to 0.113p/therm above settlement. Carbon is showing weakness, whilst the rest of the complex is pushing higher, with Dec-20 down €0.43/tonne from settlement. Power could look to follow at the open although with gas prices currently decreasing and weak carbon, the commodity could open flat. Oil continues to trade up with Trump sending Iran-related tweets, not helping to de-escalating the situation. The Mar 20 Brent contract moved above $70 this morning although it has eased since with the contract currently sitting at $69.45/barrel. The system opened 5.8 mscm long this morning and coupled with strong wind generation (accounting for 39% of the stack), fundamentals remain bearish with price increases likely to be fuelled by geopolitical tensions and headlines.

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