Weekly Energy Market Update - 07/09/2020

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Last Week’s Pricing & Commentary

Carbon and oil took noticeable losses last week with both benchmark contracts for the commodities showing weakness whilst gas and power near-term contracts posted positive gains off the back of bullish fundamentals. However, further dated contracts were pulled lower by weakness in carbon and oil. Oct 20 NBP gas and power contracts drifted lower at the start of the week with carbon weakness playing a large part as the contracts ignored an unplanned Norwegian outage, lower temperatures and low wind output that weighed heavily on the prompt. Oct 20 NBP and baseload lost 0.14p/therm and £0.36/MWh on Tuesday whilst seasonal contracts tracked lower too. The prompt showed some strength with power hitting a high of £81/MWh late in the day, but this did not influence the front of the curve enough to negate losses to the front month contract. This general trend continued through to Wednesday’s trading although a pick-up in wind generation helped day-ahead and near-term contracts dip lower still.

Thursday brought about change with most contracts punching higher as they found support from rallying prompt markets, cooler temperatures and reduced Norwegian capacity. Oct 20, Winter 20 and Summer 21 contracts gained 1.19p/therm, 0.35p/therm and 0.25p/therm as a result, with the gains at front end of the curve proving enough to cause overall gains for the week. Friday proved to be more pedestrian with losses within day cancelling out the higher opens that occurred with some contracts. Carbon and oil proved more volatile last week with Dec 20 EUAs and Nov 20 Brent posting losses of €2.15/tonne and $3.14/barrel on the week. Dec 20 EUAs dropped over €1/tonne on Tuesday as a return to full sized auctions and the commodity behaving more rationally helped the contract to a loss. Wednesday and Thursday were spent attempting to recover these losses, posting gains of €0.44/tonne and €0.54/tonne. However, Friday saw the contract crash lower, losing €1.16/tonne, tracking equities. Brent consistently moved lower on the week, although displaying quite some volatility with the Nov contract regularly trading in a $2 range. Slow economic recovery, highlighted by weak US gasoline demand and high unemployment figures, helped the contract lower on the week. 

Last Week’s Average Generation Stack

This Morning’s View

The front end of the gas curve is displaying significant weakness currently with the front two contracts both close to 1p/therm below settlement. Little has traded further down the curve on seasonal contracts although these contracts are likely to follow suit. Slight weakness in carbon with Dec 20 EUAs sitting €0.09/tonne below settlement and weakness in gas could pull power lower at the open too. Low renewable output this morning with CCGT making up the majority of the stack could provide some support to plummeting near-term gas prices but a well-balanced NTS could weigh further still on these contracts. Nov 20 Brent continues its trip lower with the contract down $0.42/barrel from settlement.  

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