Weekly Energy Market Update - 06/09/2021

Last Week’s Pricing & Commentary

The energy complex remained strong last week as UK markets played catch up with the rest of Europe following the bank holiday weekend. With Sep contracts expiring at the start of the week, only 1 month remaining of Summer 21, and fundamentals mostly unchanged, traders seem to be fearing the worst this coming winter. Reports suggest that supplies will be tight over the period, especially in the event of a colder than average winter and the hypothetical worries touted at the start of the summer come into full view as the scales tip further from possibility to increasingly likely. Midweek saw volatility take over as contracts dipped with some linking weakness to moves in oil markets as OPEC+ stand firm behind their policy to increase supply, with Russia suggesting they could produce above the quota, despite demand fears. Others are pointing to Mallnow nominations that picked back up to pre-condensate plant fire levels, although nominations dropped from the prior day. Either way, prices dropped across the energy complex with the exception of the front 9 gas months which just about held their level.

Weakness extended through to early trading on Thursday although prices began to reverse these losses and manage settlement to settlement gains. However, a post-settlement sell-off saw prices eek lower once again on Friday. Despite frequent changes to price direction, gains achieved at the beginning of the week were enough to help the complex higher overall on the week. Oct 21 NBP gained 7.84p/therm over the course of the week whilst Oct 21 baseload managed £7.18/MWh. Dec 21 EUA’s rose €0.56/tonne, often finding direction from gas as the contract reacted quickly to changing sentiment whilst in fairly unchartered territory above €60/tonne. Nov 21 Brent managed an increase of $0.59/barrel as Hurricane Ida and OPEC+ news saw the contract price struggle to post consistent moves either way. 

Last Week’s Average Generation Stack

This Morning’s View

The day-ahead auction cleared at a weighted average of c. £731/MWh for the evening peak which is the highest since 15th January 2021 which signalled the price action we could expect to see this morning. System prices, having hit c. £240/MWh yesterday, have kicked on further reaching a new high of c. £283/MWh this morning. This has dragged the front of the curve higher at the open with Oct 21 NBP up 3.85p/therm from settlement with gains through to the end of 2021 currently. This has sparked strength in carbon which is up €1.13/tonne from settlement on the Dec 21 EUA contract. UKA’s and power will likely follow suit, finding direction from already bullish gas and EUA’s. Length in the NTS and solar expected to help fill some of the gap left by low wind output could see gains kept in check as the day progresses. Oil slips at the open as the world’s top exporter, Saudi Arabia, cut crude contract prices in Asia over the weekend which has led to Nov 21 Brent dropping $0.70/barrel already this morning. US offshore oil output lags behind expectation as they begin to restart following Hurricane Ida which could cap losses. 
 

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