Weekly Energy Market Update - 10/08/2020

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Last Week’s Pricing & Commentary

Last week saw temperatures soar causing an uptick in air con demand which pulled national demand and near-term contracts higher. The week began with gas contracts taking the spotlight from recently bullish carbon as the front month contract rose close to 20% on the day, seemingly eyeing levels above 20p/therm. After initially gapping lower, the contract quickly pushed back above settlement before settling 3.02p/therm above the open. The contract remained strong throughout the week, although strength was more muted after Monday’s huge rally. The contract eventually moved above the 20p/therm mark on Thursday and settled 6.65p/therm up on the week by Friday. Power was a similar story with the Sep 20 baseload contract posting significant gains whilst upwards movements tempered further along the curve. Sep 20 baseload rose £5.21/MWh on the week, helped by lower wind generation causing a pickup in gas burn generation, relatively low LNG flow and the effect of a heatwave across NWE could have on French nuclear output. Gains were more muted further along both gas and power curves with Summer 21 NBP and baseload gaining 1.72p/therm and £2.18/MWh respectively.

Carbon had a much less impactful week, failing to give any noticeable direction to gas and power with the Dec 20 contract drifting sideways. Dec 20 EUAs posted a small gain of €0.14/tonne on the week where the contract was largely driven by auction performance and other commodities within the energy complex providing some direction. Oil began the week trading up, helped by positive manufacturing data out of the US, a drop in US crude stockpiles, discussions around the next phase of the US economic stimulus plan and some Asian price recovery. With this said, many remain wary as COVID-19 cases in many countries continue to rise, which was evidenced in the latter half of the week with Brent easing off somewhat, as most countries are reacting quickly to implement regionalised, increased lockdown measures. Oct 20 Brent finished the week $0.87/barrel up.

Last Week’s Average Generation Stack

This Morning's View

With higher temperatures and strong solar output expected for the next couple of days, we could see gas and power continue upwards in the same manner we did last week with gains maximised at the front end and a general lifting towards the back end. With this said, falling temperatures later in the week and an expected pickup of wind generation could pressure pricing downwards to calm the recent bull run. There’s general strength in the energy complex this morning with gas, carbon and oil pointing upwards. Gas burn generation is accounting for close to 50% of the stack currently, however a long NTS will be helping to offset the effect of this on the prompt and near-term pricing.

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