Weekly Energy Market Update - 07/12/2020

Last Week’s Pricing & Commentary

Last week saw mixed performance across the energy complex. The NBP curve was well supported at the beginning of the week with prices holding momentum above the 42.57p/therm settlement price, though high LNG flows saw these gains being reversed on Thursday. News of Norwegian strike threats on Friday however saw these losses largely recovered. NBP demand improved across the week with a peak of 29.9mcm above seasonal norms with wind outturn averaging around 5GW. Temperature forecasts which point towards warmer conditions from mid-December weighed on the pricing curve, Jan 21 NBP declined 0.63p/therm followed by losses of 0.61p/therm and 0.42p/therm on the Summer 21 and Winter 21 contracts, respectively. Front month UK Baseload gained £0.32/MWh across the week despite weakness feeding through from a declining NBP.

National Grid warned of a supply risk last Sunday, prompting power prices to reach a 4-year high, this was unusual given that demand for power on the weekend is typically lower in offices/industries, indicating greater supply risk to come especially as the Winter approaches. National Grid cited that the margin between power supply and demand is the narrowest it has been in the UK for 4-years, prompting further supply risk concerns. Baseload Summer 21 gained £0.05/MWh whilst the Winter 21 contract slipped £0.20/MWh on NBP losses. Dec 20 EUAs gained €1.76/tonne above settlement as prices broke above the €25.50-27/tonne range, an area of importance highlighted in previous market reports. Consequently, prices pushed higher but have reached a key resistance at €30/tonne which may see a short-term reversal. Elsewhere Feb 21 Brent gained $1.35/barrel as the commodity was kept upbeat on vaccine potential combined with expectations of OPEC to agree on supply cut extensions. 

Last Week’s Average Generation Stack

This Morning's View

Jan 21 NBP is up down 0.78p/therm amid warmer temperature forecasts above seasonal norms, estimated to arrive by mid-December. The Summer 21 and Winter 21 contracts have also declined as a result, by 0.64p/therm and 0.28p/therm respectively. Dec 20 EUAs have retraced by €0.52/tonne, with prices trading below €30/tonne. Price action observation has shown multiple rejections from €30/tonne, often resulting in prices slipping towards €26/tonne. If bearish momentum continues to persist, we may see this being repeated. Feb 21 Brent is down $0.32/barrel, though the recent supply cut extension agreement by OPEC is likely to see prices remaining supported overall unless non-OPEC members decide to increase oil production.

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